TERMINOLOGY The terms used in International Trade have been given
a common nomenclature to have a uniform economic language all across the
world. Very often the parties to a contract are unaware of the differences
in the trading practices of in their respective countries. This can lead
to misunderstanding , disputes and litigation involving waste of time
and money. To resolve this problem the International Chamber of Commerce
published in 1936 a set if International rules for the interpretation
of Trade terms. These rules were called as "Incoterms 1936".
Method of Presentation The terms are grouped into four categories:
The only term where the goods are made available to the buyer at the seller's premises - "E" terms.
Where the seller is called upon to deliver the goods to a carrier appointed by the buyer-"F"terms.
However the seller has to contract for carriage without assuming risk of loss/damage-"C" terms.
Where the seller has to bear all the costs and risk involved in bringing the goods to the country of destination -"d" terms.
The main incoterms are given below:
EXW: EX Works- This means that the seller fulfils his obligations to deliver when he has made the goods available at his premises to the buyer. The seller is not responsible for anything beyond producing the goods.
FCA: Free carrier- This means the seller fulfills his obligation to deliver goods when he hands over the goods to a carrier named by a buyer at the point directed by the buyer.
FAS: Free AlongSide ship- FAS means that the seller fulfils his obligation when the goods are placed along the ship. All the risks and responsibilities are thereafter transferred to the buyer .He is required to clear the goods for export.
FOB :Free on Board- This means the seller fulfils his obligation to deliver when the goods have passed over the ship's rail at the named port of destination. This requires the seller to clear the goods for export.
CFR: Cost and freight- This means the seller must pay the cost and freight to bring the goods to the named port but the risk of loss and damage and the additional costs for events after the goods are delivered on the board is carried over to the buyer.
CIF: Cost, insurance and Freight- This means that the seller has the same obligations as above but in addition the insurance also is his responsibility. This requires the seller to clear the goods for export.
CPT: Carriage Paid To- This means the seller pays the freight for the carriage of the goods to the named destination. The risk of loss or damage to the goods due to any event occurring after the goods are delivered to the carrier custody is transferred to the buyer.
CIP: Carriage and Insurance Paid to- This means that the seller has the same obligation as above but in addition he has to procure ncargo insurance against any damage or loss to the goods. This requires the seller to clear the goods for export.
DES: Delivered Ex Ship- Herr the seller fulfils his obligation to deliver when the goods are made available to the buyer on board the ship uncleared for import at the port of destination.
DAF: Delivered At Frontier- This means the seller is through with his obligation when he makes the goods available cleared for export at the named point but before the customs border of the adjoining country.
DEQ: Delivered Ex Quay- This means the seller fulfils his obligation to sell when he makes the goods available to the buyer on the quay at the named port of destination, cleared for importation. The seller has to bear all the costs and risks of delivering the goods.
DDU: Delivered duty unpaid- This means that the seller fulfils his obligation when the goods are made available at the named port of destination. The seller bears all the risks and costs excluding the duties , taxes and official charges payable on importation. The formality of customs clearance is also carried out by the seller.
DDP: Delivered Duty Paid- This means that the seller fulfills his obligation to deliver goods when they are made available at the point of destination. Here the seller also has to bear the duties and other official charges of importation. This should not be used if the seller is unable to obtain the import license.
THE PAYMENT TERMS IN INTERNATIONAL TRADE There are 4 basic terms of payment in International trade.
They are as follows:Documents on Acceptance
Document Against Payment
Letter of Credit
Foreign Inward Remittance Certificate
Document on Acceptance (D/A)
Document Against Payment (D/P)
Letter of Credit (L/C)
Foreign Inward Remittance Certificate (FIRC)