INCOTERMS

Incoterms, promulgated by the International Chamber of Commerce, is an acronym for “International

commercial terms,” and provide a standard set of definitions for trade terms (also known as delivery
terms and terms of sale) for use in international trade. The eleven terms (as of Incoterms 2010, effective
January, 2011) are: EXW, FCA, FAS, FOB, CPT, CFR, CIF, CIP, DAT, DAP and DDP.

Incoterms facilitate international commerce by promoting common and precise understanding between a

seller and buyer of their respective operational obligations, costs and passage of risk of cargo loss or
damage under various specified delivery arrangements. Citing a particular Incoterm in a sales contract
will also aid transportation intermediaries, banks, and service providers involved in shipping or financing
the goods better performing their functions. Incoterms are also designed to reduce the likelihood of
disputes between a seller and buyer over their respective responsibilities and costs.

Incoterms first edition was published in 1936, in English and French. Since then there have been five
revisions at approximately 10 year intervals, with transaction into most commercially used languages.
The 1990 revision first addressed the use of electronic messages (EDI) used in lieu of traditional shipping
documents. The revision in 2000 made substantive changes to the customs clearance and payment of
customs duty obligations under FAS and DEQ terms; and the loading and unloading obligations under
FCA. And Incoterms 2010 eliminated terms DAF, DES, DEQ and DDU, replacing these with new terms
DAT or DAP.

EXW

Abbreviation for ex works, the Incoterm (delivery term) under which the Seller is responsible only for
making the goods available at his designated premises for pick up by the buyer or buyer’s designated
transportation carrier. Upon release of the goods to the buyer or carrier, the seller has no further
responsibilities; all costs and risks of transportation transfer to the buyer. Variations on this term ex
works include ex-factory, ex-mill, ex plant, ex refinery, ex site, ex warehouse, etc., depending upon the
type of origin facility at which goods will be delivered to the buyer by the seller.

FCA

Abbreviation for free carrier (named place). The Incoterm (delivery term) under which the seller is
responsible for handing over the goods, cleared for export, to a transportation carrier named by the buyer
at a named location, typically at either the seller’s facility or else the terminal of the buyer-nominated
carrier or freight forwarder, typically within the country of export. If the FCA point is the seller’s facility,
and loading the conveyance is essential to “handing over the goods,” the seller is responsible for the risk
and expense of loading (if loading is not otherwise included in the carrier’s basic transportation charge).
FCA, shipper’s facility, is the appropriate delivery term for situations in which the shipper will load an
intermodal container, truck trailer, rail car, barge or other conveyance.

The seller is not responsible for the cost of unloading the conveyance at the named destination point, nor
for transfer of the goods to the on-carrier

FAS

(Incoterms) Abbreviation for free alongside. The Incoterm (delivery term) under which the seller is
responsible for arranging transportation of the goods to a named ocean or inland waterway port and
placing them “alongside” the vessel which the buyer has arranged to transport the goods. The seller is
also responsible for export clearance (under pre-2000 versions of Incoterms, this was the buyer’s
responsibility). For this reason, FAS terms require special coordination by the shipper or freight
forwarder with the inland carrier and water carrier. Under FAS terms, the seller has no obligation to
insure the shipment. See Also definitions for ship’s rail, ship’s tackle and shipside delivery.

FOB

Abbreviation for free on board. The Incoterm (trade term) under which the seller is responsible for
arranging transportation of goods to a vessel named by the buyer at a named port, and for all costs
of placing the goods on board the vessel if this not included in the ocean carrier’s basic transportation rate
(which it rarely is—see terminal charge, handling charge). The seller’s responsibility is satisfied when the
cargo is “on-board” the vessel. The seller is not responsible for costs of actually stowing the goods on
board, but is responsible for that portion of the terminal charges which cover services other than stowage
and vessel wharfage charges. The seller is not responsible for the cost of ocean carriage, marine cargo
insurance, nor for arranging the contract of carriage unless the buyer requests his assistance with this.
This Incoterm may never be used alone; rather it must be clarified by stating a specific location, an,
because of possible uncertainty as to mode (see box below) the type of conveyance (e.g., “FOB vessel,
Baltimore”).

CPT

Abbreviation for carriage paid to; the Incoterm (delivery term) under which the seller is responsible for
arranging transportation and paying the freight for goods to a named point, typically in the destination
country. Note, however, that the seller has fulfilled his obligation when he has tendered the goods to the
transportation carrier who, under the contract of carriage, will accomplish this transportation to the named
point. At this point, typically in the origin country, the buyer assumes the risk of loss of the goods and/or
unforeseeable costs. This Incoterm may be used with any transportation mode, including through
multimodal movements. Under CPT terms, the seller has no obligation to insure the shipment.

CFR

Abbreviation for cost and freight; the Incoterm (delivery term) under which the seller is responsible for
arranging and paying for transportation of the goods (but not shipping insurance) through to a named
ocean/inland waterway destination port, typically in the destination country. Note, however, that the seller
has fulfilled his obligation when he has tendered the goods to the transportation carrier who, under the
contract of carriage, will accomplish this transportation to the named point. When the cargo is “on-board”
the vessel, typically in the origin country, the risk of loss of the goods and/or unforeseeable costs transfers
to the buyer. This Incoterm may be used only with ocean or inland waterway transportation for cargo
delivered directly to the vessel (i.e., cargo shipped loose or in bulk, aboard a breakbulk vessel, ro-ro
vessel, bulk vessel, etc.); it is not used for cargo to be shipped in an intermodal container via a container
vessel, where the correct term for delivery to a foreign port or inland container yard is CPT.

CIF

Abbreviation for cost, insurance and freight; the Incoterm (trade terms) under which the seller is
responsible for arranging and paying for transportation of the goods and shipping insurance through to a
named ocean or inland waterway destination port. Note, however, that the seller has fulfilled his
obligation when he has tendered the goods to the transportation carrier who, under the contract of
carriage, will accomplish this transportation to the named point. Once the cargo is “on-board” the vessel,
typically in the origin country, the risk of loss of the goods and/or unforeseeable costs transfers to the
buyer.

CIP

(Incoterms) Abbreviation for carriage and insurance paid to; the Incoterm (delivery term) under which
the seller is responsible for arranging and paying for both the transportation of the goods and shipping
insurance through to a named destination point, typically in the destination country. Note, however, that
the seller has fulfilled his obligation when he has properly insured the goods and tendered them to the
transportation carrier who, under the contract of carriage, will accomplish this transportation to the named
point. At this point, typically in the origin country, the risk of loss of the goods and/or unforeseeable costs
transfers to the buyer.

This Incoterm may be used with any transportation mode, including cargo to be shipped in intermodal
containers aboard a container vessel, and through multimodal movements. (For cargo shipped loose or in
bulk via vessel, CIF would typically be used instead of CIP for port-to-port ocean or inland waterway
shipments where seller was to provide insurance.)

Action responsibilities, division of costs and passage of risk, CIP terms may be illustrated as follows
where the principal modes of transportation are airfreight and ocean freight:

DAT

(Incoterms) Abbreviation for delivered at terminal, the Incoterm (delivery term) under which the seller is
responsible for delivering the goods, export cleared, to the carrier’s terminal at the
named destination location, unloaded from the delivering conveyance, available for customs clearance
and/or pick-up by the buyer. Under DAT terms, the seller assumes the cost and risk of unloading at the
named destination terminal, whereas the buyer is responsible for customs clearance. This term may be
used with any transportation mode, including through intermodal transportation, and for international as
well as domestic sales transactions.

DAP

(Incoterms) Abbreviation for delivered at place, the Incoterm (delivery term) under which the seller is
responsible for delivering the goods, export cleared, to a named destination place, on-board the
transportation conveyance, available (“at the disposal of the buyer”) for unloading by the buyer. Under
DAP terms, the buyer assumes the cost and risk of unloading at the named destination place and for
customs clearance. This term may be used with any transportation mode, including through intermodal
transportation, and for international as well as domestic sales transactions.

DDP

(Incoterms) Abbreviation for delivered duty paid. The Incoterm (delivery term) under which the seller is
responsible for arranging transportation of the goods through to the buyer’s door, and pays all costs
required to accomplish this, including customs clearance, customs duty, and taxes due upon importation.
Under pre-1990 versions of Incoterms, and under American Foreign Trade Definitions, this is also known
as free domicile or free house. Under DDP terms, the seller has no obligation to insure the shipment. This
Incoterm may be used with any transportation mode or combination of modes.

Action responsibilities, division of costs and passage of risk, DDP terms may be illustrated as follows
where the principal modes of transportation are airfreight and ocean freight: