Trade Terms in Sale Contracts Last updated 12-Aug-2014

Export sale transactions usually embody so-called trade terms. These trade terms have been developed by international mercantile custom with the purpose to simplify the sale of goods abroad. Standard sets of term, such for example as Incoterms 2000 or Incoterms 2010, were sponsored by the International Chamber of Commerce. Publishing of trade terms in standard sets removes any doubts as to the meaning of terms, therefore allowing the buyer and the seller to refer to a term as, for example, “c.i.f. Hamburg (Incoterms 2000)”. The ICC introduced the first version of Incoterms, short for "International Commercial Terms," in 1936. There are currently 13 Incoterms. Incoterms have been revised six times in order to reflect international trade developments.

Diagram 1. Seller-Buyer-Charterer-Owner relationship under F.O.B. contract

Below some basic terms with short descriptions:

Term
Definition
Risk
Cost
EXW
Ex Works
Buyer arranges for pick up of goods at the seller’s location. Seller is responsible for packing, labeling, and preparing goods for shipment on a specified date or time frame.
Buyer assumes all risk.
Buyer pays all transportation costs.
FCA
Free Carrier
Seller is responsible for costs until the buyer’s named freight carrier takes charge.
Seller and buyer
Split evenly
FAS
Free Alongside Ship (over water only)
Buyer arranges for ocean transport. Seller is responsible for packing, labeling, preparing goods for shipment and delivering the goods to the dock.
Seller: until the goods reach the dock.
Buyer: from dock to destination.
Buyer pays all ocean transport costs. Selleris responsible for costs associated with transporting the goods to the dock.
FOB
Free On Board (over water only)
Seller arranges for ocean transport of the goods, preparing goods for shipment, and loading the goods onto the vessel.
Buyer: once the items are on board.
Seller pays wharfage (charges to load the goods onto the ship) and freight forwarder fees.
CFR
Cost and Freight (over water only)
Seller has the same responsibilities as when shipping FOB, but shipping costs are prepaid by the seller.
Seller assumes risk until the shipment reaches the overseas dock.
Seller pays costs of freight fees up to destination.
CIF
Cost, Insurance, and Freight (over water only)
Seller has the same responsibilities as when shipping CFR with the addition of including a marine insurance policy.
Seller assumes risk until the shipment reaches the overseas dock.
Seller pays insurance and freight forwarder fees.
CPT
Carriage Paid To
CIP
Carriage and Insurance Paid to
DAF
Delivered At Frontier
Seller undertakes to make the goods available for collection at a named frontier
DES
Delivered Ex Ship
Seller undertakes to make the goods available for collection on board a ship
DEQ
Delivered Ex Ship
Seller undertakes to make the goods available for collection on the quay
DDU
Delivered Ex Ship
Seller undertakes to make the goods available at the named place of destination in the country of importation, not having paid the duties
DDP
Delivered Ex Ship
Seller undertakes to make the goods available at the named place of destination in the country of importation, having paid the duties

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