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Providing rules for interpretation. Incoterms provides a set of international rules for interpreting the chief terms used in foreign trade contracts, and for the optional use of businessmen who prefer the certainty of uniform international rules to the uncertainties of different interpretations of the same terms in different countries.
Keeping pace with trade practices. Parties to a contract often are unaware of the differences between trading practices in their respective countries. The existing diversity of interpretation is a constant source of friction in international trade, leading to misunderstandings, disputes and references to the courts with all the waste of time and money that these entail. To help traders overcome this friction, the International Chamber of Commerce first published a set of international rules in 1936 for the interpretation of trade terms — known as Incoterms 1936. Amendments and additions were later made in 1953, 1967, 1976, 1980, 1990 and 2000 to provide an up-to-date set of rules that were broadly in line with current international trade practices.
Overcoming barriers. The chief difficulties faced by importers and exporters are:
Uncertainty as to which country’s laws apply to their contracts
Difficulties arising from inadequate information
Difficulties arising from diversity in interpretation
These handicaps to trade can be much reduced by the use of Incoterms.
Distribution of Main Obligations between Seller and Buyer as per Incoterms 2000.
Buyer Fixes Contract of Carriage
EXW - Ex Works
Delivery:
Named Place Seller’s Premises/placed at the disposal of buyer - not loaded onto/into means of transport
Transfer of Risk & Costs:
Place of Delivery
FCA - Free Carrier
Delivery:
Named Place of handing over or placing at the disposal of Carrier
Transfer of Risk & Costs:
Place of Delivery
FAS - Free Alongside Ship
Delivery:
Alongside vessel at named port of shipment/delivery
Transfer of Risk & Costs:
Place of Delivery
FOB - Free on Board
Delivery:
On Board the vessel at named Port of Shipment
Transfer of Risk & Costs:
Passing Ship’s Rail
Seller Fixes Contract of Carriage
CFR - Cost and (C+F) Freight
Delivery:
On Board the vessel at named Port of Shipment
Transfer of Risk:
Passing Ship’s Rail
Transfer of Costs:
Named Port of Destination
CIF - Cost, Insurance and Freight
Delivery:
On Board at named Port of Shipment. Seller arranges insurance (minimum Cover Institute Cargo Clauses or equivalent)
Transfer of Risk:
Passing Ship’s Rail
Transfer of Costs:
Named Port of Destination
CPT - Carriage Paid To
Delivery:
Named Place of handing over or placing at the disposal of the first Carrier
Transfer of Risk:
Place of Delivery
Transfer of Costs:
Named Place of Destination
CIP - Carriage and Insurance
Delivery:
Named Place of handing over or placing at the disposal of the first Carrier. Seller arranges insurance (Minimum Cover Institute Cargo Clauses or equivalent)
Transfer of Risk:
Place of Delivery
Transfer of Costs:
Named Place of Destination
DAF - Delivered at Frontier
Delivery:
Named Place at Frontier before the customs border of the adjoining country; not unloaded
Transfer of Risk & Costs:
Place of Delivery
DES - Delivered Ex Ship
Delivery:
Named Port of Discharge – not unloaded
Transfer of Risk & Costs:
Place of Delivery
DEQ - Delivered Ex Quay
Delivery:
Placed at the Disposal at named Port of Discharge
Transfer of Risk & Costs:
Place of Delivery
DDU - Delivered Duty Unpaid
Delivery:
Placed at the disposal at named Place of Destination – not unloaded
Transfer of Risk & Costs:
Place of Delivery
DDP - Delivered Duty Paid
Delivery:
Placed at the disposal at named Place of Destination – not unloaded