TOPIC 6:

INTERNATIONAL
COMMERCIAL TERMS
(INCOTERMS)

Stephen Wagara
Email: stephenwagara7@gmail.com
Phone: +255 757 305 067
CHAPTER OVERVIEW
Analyze INCOTERMS
Relate INCOTERMS and a specific

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buying environment.
Recommend the best INCOTERMS(s)
to use

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INTRODUCTION
 Language is one of the most complex and
important tools of International Trade.

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 As in any complex and sophisticated
business, small changes in wording can have
a major impact on all aspects of a business
agreement.
 That is why the International Chamber of
Commerce created "INCOTERMS" in 1936.
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INTRODUCTION
 Each INCOTERM refers to a type of
agreement for the purchase and shipping

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of goods internationally.
 There are 11 different terms, each of
which helps users deal with different
situations involving the movement of
goods.

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ANALYSIS OF INCOTERMS
 Three keys issues addressed by
incoterm:

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 Costs: who is responsible for the expenses
involved in a shipment at a given point in
the shipment's journey?
 Ownership/Control: who owns the goods
at a given point in the journey? (title of the
goods)
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ANALYSIS OF INCOTERMS
 Risk/Liability: who is responsible for
paying damage to goods at a given point

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in a shipment's transit?

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ANALYSIS OF INCOTERMS
 INCOTERMS are most frequently listed
by category.

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 Terms beginning with F refer to shipments
where the primary cost of shipping is not
paid by the seller.
 Terms beginning with C deal with
shipments where the seller pays for
shipping.
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ANALYSIS OF INCOTERMS
 E-terms occur when a seller's
responsibilities are fulfilled when goods

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are ready to depart from their facilities.
 D-terms cover shipments where the
shipper/seller's responsibility ends when
the goods arrive at some specific point.

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ANALYSIS OF INCOTERMS
 Because shipments are moving into a
country, D terms usually involve the

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services of a customs broker and a freight
forwarder.

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 INCOTERMS 2010
Buyer takes title when taking delivery of the
EXW Ex Works goods at supplier’s facility. Buyer is responsible
for the shipment and duties.

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Buyer takes possession and title at the airport or
FCA Free Carrier truck terminal at the port of export in the seller’s
country after the goods clear customs.

Free Alongside Buyer takes possession at the dock at the port of

FAS
Ship export after the goods clear customs.

Free On Board/ Buyer takes responsibility and title for the goods10
FOB
Freight On Board as they pass over the ship’s rail during loading.
 INCOTERMS 2010
The seller is required to clear the goods for
export, deliver them onboard the ship at the port
of departure, and pay for transport of the goods
CFR Cost and Freight
to the named port of destination. The risk passes

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from seller to buyer when the seller delivers the
goods onboard the ship.

Supplier arranges freight and buys insurance for

Cost, Insurance, the goods as part of the sales price. Title and risk
CIF
and Freight transfer to the buyer once the goods clear a
ship’s rail while being loaded.

Title transfers to buyer when goods are loaded

CPT Carriage Paid into a container. Seller selects and pays the 11
carrier. Similar to CFR.
 INCOTERMS 2010
The Seller delivers the goods to a terminal at
destination previously agreed to by the seller and
Delivered at
DAT the buyer. The buyer then takes care of the import
Terminal
formalities and transportation to the final
destination.

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The shipper/seller pays for carriage to the named
Delivered At place, except for costs related to import clearance,
DAP
Place and assumes all risks prior to the point that the
goods are ready for unloading by the buyer.

Whereby, the shipper/seller is responsible for

dealing with all the tasks involved in moving goods
from the manufacturing plant to the
Delivered Duty
DDP buyer/consignee's door. It is the shipper/seller's
Paid
responsibility to insure the goods and absorb all12
costs and risks including the payment of duty and
fees.
INCOTERMS 2000

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 RESPONSIBILITIES OF RISK AND COST
1.EX WORK
Risks and Costs for the Seller

There is no risk and cost for the seller in getting the goods
delivered to the buyer.
The seller is not even responsible for loading the goods when they

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are picked up.
The seller has to properly pack and label the goods and get them
ready for shipment.

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 Risks and Costs for the Buyer
 The full risk and all costs are for the buyer in case of Ex Works.
 The seller may load the shipment, but that is at the buyer's risk.
 Transportation to the (air)port, unloading at the port of export,
loading onto the plane or ship, unloading at the port of import,
loading onto a truck and delivering it to the final destination, all

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have to be arranged and paid for by the buyer.
 The seller does have to provide documentation and assistance
with obtaining an export license or documentation, at the buyer's
cost.
 Insurance needs to be arranged by and paid for by the buyer as
well.

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2. FREE CARRIER (FCA)
Risks and Costs for the Seller

The seller is only responsible for delivery to the specified

destination as part of the liability transfer.
It isn't obligated to unload the goods, but the seller might be
responsible for ensuring that the goods have been cleared for export.

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The seller includes transportation costs in its price and assumes the
risk of loss until the carrier receives the goods.

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 Risks and Costs for the Buyer
 Liability for the merchandise transfers from the seller to the
carrier or buyer at the time the seller delivers the goods to the
agreed port or area.
 The buyer doesn't have to deal with export details and licenses
because this is the responsibility of the seller.

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 The buyer must arrange for transport, however. Once goods arrive
at the carrier and title transfers to the buyer.

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3. FREE ALONGSIDE SHIP (FAS)
Risks and Costs for the Seller

The seller is only responsible for delivery the goods to the DOCK.

The seller is responsible for ensuring that the goods are cleared for
export.

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Risks and Costs for the Buyer
The buyer is responsible for costs of re-loading goods, ocean
transportation, and insurance.

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4. FREE ON BOARD (FOB)
Risks and Costs for the Seller

The seller is responsible for arranging and paying for

transportation to the ship
Also the seller is responsible for loading the goods onto the ship.

The risk used to transfer to the buyer when the goods go over the

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rail of the ship, this means that until that time Seller is responsible
for any damage or loss.

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 Risks and Costs for the Buyer
 The buyer is responsible for transporting the goods to the final
destination.
 The buyer is also responsible for arranging and paying for any
import documents and taxes.
 The seller is obligated to hand over any documents or

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information needed to enable the successful import, at the cost of
the buyer.

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5. COST AND FREIGHT (CFR)
Risks and Costs for the Seller

The seller is responsible for arranging and paying for

transportation to the port of destination.
The seller is also responsible for all export formalities.

While the seller pays for transportation to the port of destination,

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the risk for the cargo transfers to the buyer the moment the shipment
is loaded on the vessel.
The seller is responsible for all costs related to exporting the
shipment from the country of origin.

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 Risks and Costs for the Buyer
 The risk for the shipment passes to the buyer when the shipment is
loaded onto the vessel.
 The buyer is responsible for unloading the goods off the ship at the
port of destination.
 Costs for offloading and onward transportation at the port of

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destination are for the buyer.
 The Buyer is responsible for all costs related to importing the
shipment into the country of destination. Since the Seller is not
responsible for insuring the shipment, the seller needs to arrange
insurance for the shipment.

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6. COST, INSURANCE & FREIGHT (CIF)
Risks and Costs for the Seller

The seller is responsible for arranging and paying for

transportation to the port of destination.
The seller is also responsible for all export formalities.

While the seller pays for transportation and insurance to the port

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of destination, the risk for the cargo transfers to the buyer the
moment the shipment is loaded on the vessel.
The seller is responsible for all costs related to exporting the
shipment from the country of origin.

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 Risks and Costs for the Buyer
 The risk for the shipment passes to the buyer when the shipment is
loaded onto the vessel.
 The buyer is responsible for unloading the goods off the ship at
the port of destination.
 Costs for offloading and onward transportation at the port of

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destination are for the buyer.
 The Buyer is responsible for all costs related to importing the
shipment into the country of destination.

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BEST INCOTERMS TO USE
 Buying/import – CIF
 Export - FOB

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THANK YOU!!