International

Commercial
Terms

Praveen Ranaweera
BSc in Business Management
(Special)
NSBM Green University
Presentation Outline
• What are INCO Terms?
• Importance of INCO Terms in
International Trade
• INCO Terms 2020

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What are INCO Terms?
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INCO Terms
• The word Intercoms is an abbreviation of “International Commercial Terms”.
(Delivery terms)

• The Incoterms are the world’s essential terms of trade for the sale of goods.

• These are the selling terms that the buyer and seller of goods both agree to
during international transactions.

• Provides specific guidance to individuals participating in the import and

export of global trade on daily basis.

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Purpose of INCO Terms
• Understanding Incoterms is a vital part of International Trade because they
clearly state which tasks, costs and risks are associated with the buyer and
the seller.
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Importance of INCO Terms in international Trade
• Provide a standardized set of rules that all buyers and sellers must follow
when engaging in international trade.
• This sets clear guidelines of cost, insurance and ownership for each party.
Because Incoterms are accepted internationally, this helps facilitate trade
between countries.
• All International purchases will be processed on an agreed Incoterm to
define which party legally incurs costs and risks. 
Positive factors of INCO Terms
• Reduce Cost
Incoterms that require the buyer or
the seller to provide insurance can
help reduce risk. This is because
certain Incoterms require either the
seller or the buyer to cover the
insurance costs from the goods being
imported. 
• Convenience in handling the accounts
How they help the seller and buyer
with their accounting. The very nature
of Incoterms dictates who is
responsible for paying for the various
logistical activities involved in the
importing/exporting process

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INCO Term Groups

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INCO Terms 2020
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EX Works
• Ex works is when the seller places the goods at the disposal of the buyer at
the seller’s premises or at another named place (i.e., works, factory,
warehouse, etc.)

• The seller does not need to load the goods on any collecting vehicle. Nor does
it need to clear them for export, where such clearance is applicable.

• An international trade arrangement in which the seller makes a product

available at a designated location and the buyer is responsible for all logistics
and costs thereafter

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Advantages and Disadvantages of EX Works

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INCO Term Groups

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FOB – Free On Board
• The seller delivers the goods on board the vessel nominated by the buyer at
the named port of shipment or procures the goods already so delivered.

• The risk of loss of or damage to the goods passes when the products are on
board the vessel.  The buyer bears all costs from that moment onwards.

• The seller (consignor) is responsible for the transportation of the goods to

the port of shipment and the cost of loading.

• The buyer (consignee) pays the costs of ocean freight, insurance, unloading,
and transportation from the arrival port to the final destination. The seller
passes the risk to the buyer when the goods are loaded at the originating
port. 15
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FAS – Free Alongside Ship
• The seller delivers when the goods are placed alongside the vessel
(e.g., on a quay or a barge) nominated by the buyer at the named
port of shipment.
• The risk of loss of or damage to the goods passes when the
products are alongside the ship. The buyer bears all costs from
that moment onwards.
• Seller must arrange for goods to be delivered to a designated port
and next to a specific vessel for easier transfer.

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FCA – Free Carrier
• The seller delivers the goods to the carrier or another person nominated
by the buyer at the seller’s premises or another named place.
• The parties are well advised to specify as explicitly as possible the point
within the named place of delivery, as the risk passes to the buyer at that
point.
•  Exporter has to deliver the goods to the importer’s collecting vehicle at
the point of delivery, which can be at the exporter’s premises or another
point that’s been specified in the contract of sale.
• If the delivery point is the exporter’s premises, then the responsibility of
loading the goods on the vehicle belongs to the exporter.
• If the delivery point is another place than the exporter’s premises, the
exporter transports the goods to the designated place/port and from that
point on, unloading is the importer’s responsibility. 19
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INCO Term Groups

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CFR – Cost and Freight
• The seller delivers the goods on board the vessel or procures the goods
already so delivered.
• The risk of loss of or damage to the goods passes when the products are on
board the vessel.
• The seller must contract for and pay the costs and freight necessary to bring
the goods to the named port of destination.
• Exporter is obligated to deliver the goods on board the vessel arranged by
the exporter itself.
• Until the goods are placed aboard the ship, the exporter bears all risks and
costs of loading to the collecting vehicle, inland transport, and export
clearance.

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CIF – Cost Insurance and Freight
• Exporter is obligated to deliver the goods to the buyer by placing
them aboard the vessel which it paid for and covers the insurance
as well.
• The seller delivers the goods on board the vessel or procures the
goods already so delivered. The risk of loss of or damage to the
goods passes when the products are on the ship.
• The seller must contract for and pay the costs and freight
necessary to bring the goods to the named port of destination.
• The seller also contracts for insurance cover against the buyer’s risk
of loss of or damage to the goods during the carriage.
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CPT – Carriage Paid To
• The seller delivers the goods to the carrier or another person
nominated by the seller at an agreed place (if any such site is
agreed upon between parties).
• The seller must contract for and pay the costs of carriage necessary
to bring the goods to the named place of destination.
• Exporter is obligated to load the goods to the first carrier and pay
the freight to the agreed destination in the importer’s country.
• It’s critical to know that the exporter is not responsible for the risks
of the goods transportation; it just pays the freight and it’s done

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CIP – Carriage and Insurance Paid To
• The seller has the same responsibilities as CPT, but they also contract
for insurance cover against the buyer’s risk of loss of or damage to the
goods during the carriage.
• The buyer should note that under CIP the seller is required to obtain
insurance only on minimum cover. Should the buyer wish to have more
insurance protection, it will need either to agree as much expressly
with the seller or to make its own extra insurance arrangements.
• Exporter is obligated to load the goods to the first carrier and pay the
insurance and freight to the agreed destination in the importer’s
country.

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INCO Term Groups

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DAP – Delivered At Place
• The seller delivers when the goods are placed at the disposal of the
buyer on the arriving means of transport ready for unloading at the
named place of destination.
• The seller bears all risks involved in bringing the goods to the named
place.
• Exporter is obligated to load the goods onto the collecting vehicle
and deliver them to the importer at the agreed point of delivery or
destination not unloaded.
• DAP is used in any mode of transportation. Export clearance is the
liability of the exporter, while import clearance and all related
customs formalities are carried out by the importer.
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DPU- Delivered at Place Unloaded
• DPU replaces the former Incoterm® DAT (Delivered At Terminal). 
• Applicable to any form or forms of transport (air, ocean, ground, or
multimodal), that mirrors DAP, but that also requires the seller to unload the
goods at the named place of destination to complete delivery and the
risk/cost transfer to buyer.
• Generally responsible for export packing, loading charges, delivery, export
duties and taxes, origin terminal charges, loading on the carriage, carriage
charges, and destination terminal charges.
• The seller delivers when the goods, once unloaded are placed at the disposal
of the buyer at a named place of destination.
• The seller bears all risks involved in bringing the goods to and unloading
them at the named place of destination.
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DDP – Delivered Duty Paid
• The seller delivers the goods when the goods are placed at the disposal of
the buyer, cleared for import on the arriving means of transport ready for
unloading at the named place of destination.
• The seller bears all the costs and risks involved in bringing the goods to the
place of destination.  They must clear the products not only for export but
also for import, pay any duty for both export and import and carry out all
customs formalities.
• Exporter is obligated to deliver the goods to the importer at the agreed
delivery/destination point in the importer’s country and pay for all duties
and taxes in both countries and, if any, transit countries.

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 E – Exporter C - Consignee

Cost Heading EXW FOB CFR CIF DDP

1. Production Cost

2. Export Packing

3. Loading Charges

4. International Freight

5. Insurance

6. Local Transport

7. Duty & Taxes

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 E – Exporter C - Consignee

Cost Heading EXW FOB CFR CIF DDP

1. Production Cost
E E E E E
2. Export Packing
E E E E E
3. Loading Charges
C E E E E
4. International Freight
C C E E E
5. Insurance
C C C E E
6. Local Transport
C C C C E
7. Duty & Taxes
C C C C E
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Question 01
AGM (Pvt) Ltd has exported one shipment to the United States of America recently.

This company has incurred the following costs (USD)

1. For 3000 Kgs of Coconut
2. Packing Cost - 4,000/=
3. Transport cost to the port of Colombo - 2,000/=
4. Port Charges - 1,000/=
5. Freight charges to Singapore - 10,000/=
6. Insurance - 5,000/=
7. Customs Duty - 30,000/=
8. Unit Cost = $100 Each
Calculate the following prices:
(1) EXW (3) CFR (5) DDP
(2) FOB (4) CIF
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Activity 01
• “We ship goods on a truck from our plant to a buyer's plant in the United Kingdom. We
pay the freight, using the DAP buyer plant Incoterm”.
Where does the title transfer?

• Is it mandatory to use INCO Terms in International Trade?

• Which INCO Term provides the least risk to the seller?

• Which INCO Term provides the least risk to the buyer?

• What is the most commonly used Inco Term?

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Thank you

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