Trade Terms Trade terms, also called price terms or delivery terms, are an important part of a unit price in international trade, standing for specific responsibilities and obligations of both the seller and the buyer . Trade terms usually indicate the place where the goods are delivered and the mode of transport used. They have the important function of naming the exact point at which the ownership of the goods is transferred from the seller to the buyer . An introduction to Incoterms 2010 Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) and widely used in international commercial transactions. Incoterms are intended primarily to clearly describe mainly the tasks, costs and risks in the delivery of goods from the seller to the buyer. First published in 1936, Incoterms have been periodically updated, with the eighth version —Incoterms 2010—having been published on January 1, 2011. Incoterms 2010 defines 11 rules which are presented in two distinct classes. The first class includes the seven Incoterms 2010 rules that can be used irrespective of the mode of transport selected and irrespective of whether one or more than one mode of transport is employed. EXW, FCA, CPT, CIP, DAT, DAP and DDP belong to this class. In the second class of Incoterms 2010 rules, the point of delivery and the place to which the goods are carried to the buyer are both ports, hence the label “sea and inland waterway” rules. FAS, FOB, CFR and CIF belong to this class. Rules for Any Mode or Modes of Transport EXW — Ex Works (insert named place of delivery) Incoterms 2010 EXW means that the seller delivers when it 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 the goods for export, where such clearance is applicable. EXW places the greatest responsibility on the buyer and minimum obligations on the seller. It is suitable for domestic trade, while FCA is usually more appropriate for international trade. FCA — Free Carrier (insert named place of delivery) Incoterms 2010 FCA means that 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 clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point. If the parties intend to deliver the goods at the seller's premises, they should identify the address of those premises as the named place of delivery. If, on the other hand, the parties intend the goods to be delivered at another place, they must identify a different specific place of delivery. FCA requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities. CPT — Carriage Paid to (insert named place of destination) Incoterms 2010 CPT means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between the parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination. When CPT, CIP, CFR or CIF are used, the seller fulfils its obligation to deliver when it hands the goods over to the carrier and not when the goods reach the place of destination. This rule has two critical points, because risk passes and costs are transferred at different places. The parties are well advised to identify as precisely as possible in the contract both the place of delivery, where the risk passes to the buyer, and the named place of destination to which the seller must contract for the carriage. If several carriers are used for the carriage to the agreed destination and the parties do not agree on a specific point of delivery, the default position is that risk passes when the goods have been delivered to the first carrier at a point entirely of the seller's choosing and over which the buyer has no control. Should the parties wish the risk to pass at a later stage (e.g., at an ocean port or airport), they need to specify this in their contract of sale. The parties are also well advised to identify as precisely as possible the point within the agreed place of destination, as the costs to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the named place of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties. CPT requires the seller to clear the goods for export, where applicable. CIP — Carriage and Insurance Paid to (insert named place of destination) Incoterms 2010 CIP means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between the parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place 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. 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. DAT — Delivered at Terminal (insert named terminal at port or place of destination) Incoterms 2010 DAT means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination. DAT requires the seller to clear the goods for export, where applicable. DAP — Delivered at Place (insert named place of destination) Incoterms 2010 DAP means that 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. DAP requires the seller to clear the goods for export, where applicable. DDP — Delivered Duty Paid (insert named place of destination) Incoterms 2010 DDP means that 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 and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities. DDP represents the maximum obligation for the seller. The parties are well advised not to use DDP if the seller is unable directly or indirectly to obtain import clearance. Rules for Sea and Inland Waterway Transport FAS — Free Alongside Ship (insert named port of shipment) Incoterms 2010 FAS means that 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 goods are alongside the ship, and the buyer bears all costs from that moment onwards. Where the goods are in containers, it is typical for the seller to hand the goods over to the carrier at a terminal and not alongside the vessel. In such situations, the FAS rule would be inappropriate, and the FCA rule should be used. FAS requires the seller to clear the goods for export, where applicable. FOB — Free on Board (insert named port of shipment) Incoterms 2010 FOB means that 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 goods are on board the vessel, and the buyer bears all costs from that moment onwards. FOB requires the seller to clear the goods for export, where applicable. It may not be appropriate where goods are handed over to the carrier before they are on board the vessel, for example goods in containers, which are typically delivered at a terminal. In such situations, the FCA rule should be used. CFR — Cost and Freight (insert named port of destination) Incoterms 2010 CFR means that 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 goods 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. This rule has two critical points. While the contract will always specify a destination port, it might not specify the port of shipment, which is where risk passes to the buyer. If the shipment port is of particular interest to the buyer, the parties are well advised to identify it as precisely as possible in the contract. CFR requires the seller to clear the goods for export, where applicable. CIF — Cost, Insurance and Freight (insert named port of destination) Incoterms 2010 CIF means that 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 goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to brin