What is a Trade Term?

A Trade Term is a combination of letters of words which specifies certain obligations within the sales contract.


What are Incoterms?

In 1936, the International Chamber of Commerce first published a set of international rules for the interpretation of trade terms. These rules became known as “Incoterms”. They are a set of international rules for defining responsibilities between the buyer and seller and eliminating the risk of misunderstanding and subsequent disputes. Amendments ad additions have been made since then to keep the rules in line with current international practices.


Trade terms and Cargo Insurance

As a general rule the need for cargo insurance follows the risk of loss or damage during carriage, i.e. each party arranges for insurance for the part of the carriage when the goods are at his risk. The responsibilities between Seller and Buyer can be summarized as follows: -

The seller's responsibilities include:-

EXW
- provide appropriate packing required for the transport
- place the goods at the buyer’s disposal at the seller’s factory warehouse
- assist the buyer with the exportation procedures

FCA
- provide appropriate packing required for the transport
- deliver the goods into the custody of the carrier or load the goods on the vehicle provided by the buyer
- carry out the exportation procedures
- give the buyer notice that the goods have been delivered into the custody of the carrier named and contracted by the buyer

FAS
- provide appropriate packing required for the transport
- deliver the goods alongside the ship
- give the buyer notice that the goods have been delivered into the custody of the carrier named and contracted by the buyer

FOB
- provide appropriate packing required for the transport
- deliver the goods on-board the ship
- carry out the exportation procedures
- give the buyer notice that the goods have been delivered into the custody of the carrier named and contracted by the buyer

CFR
- provide appropriate packing required for the transport
- contract for carriage and pay the freight to the port of destination
- deliver the goods on-board the ship
- carry out the exportation procedures
- provide the buyer with the invoice and the transport document

CIF
- provide appropriate packing required for the transport
- contract for carriage and pay the freight to the port of destination
- deliver the goods on-board the ship
- carry out the exportation procedures
- contract and pay for agreed cargo insurance in favour of the buyer
- provide the buyer with the invoice, the transport document and the insurance policy or certificate

CPT
- provide appropriate packing required for the transport
- contract for carriage and pay the freight to the named place of destination
- deliver the goods to the (first) carrier
- carry out the exportation procedures
- provide the buyer with the invoice and the transport document

CIP
- provide appropriate packing required for the transport
- contract for carriage and pay the freight to the named place of destination
- deliver the goods to the (first) carrier
- carry out the exportation procedures
- contract and pay for agreed cargo insurance in favour of the buyer
- provide the buyer with the invoice, the transport document and the insurance policy or certificate

DAF
- provide appropriate packing required for the transport
- deliver the goods at the named place at the frontier
- carry out the exportation procedures
- provide the buyer with the documents necessary for delivery

DES
- provide appropriate packing required for the transport
- carry out the exportation procedures
- deliver the goods to the port of destination ready for unloading from the ship
- provide the buyer with the invoice, the B/L or other document necessary for delivery

DEQ
- provide appropriate packing required for the transport
- carry out the exportation procedures
- deliver the goods at the port of destination cleared on the quay
- provide the buyer with documents necessary for delivery

DDU
- provide appropriate packing required for the transport
- carry out the exportation procedures
- deliver the goods to the final destination
- provide the buyer with documents necessary for delivery

DDP
- provide appropriate packing required for the transport
- carry out the exportation and important procedures
- deliver the goods to the final destination
- provide the buyer with documents necessary for delivery


The buyer's responsibilities include: -

EXW
- take delivery of the goods and contract for the carriage to the final destination

FCA
- carry out the importation procedures and contract for th carriage to the final destination

FAS
- carry out the exportation and the important procedures and contract for the carriage to the final destination

FOB
- carry out the importation procedures and contract for the carriage to the final destination

CFR
- carry out the importation procedures and contract for the carriage from the port of discharge to the final destination

CIF
- advise the seller of the insurance
- carry out the importation procedures and contract for the carriage from the port of discharge to the final destination

CPT
- carry out the importation procedures and if required arrange carriage to the final destination

CIP
- advise he seller of the insurance
- carry out the importation procedures and if required arrange carriage to the final destination

DAF
- carry out the importation procedures and arrange the carriage from the named place at the frontier to the final destination

DES
- carry out the unloading of the goods
- carry out the importation procedures and arrange the carriage from the port of discharge to the final destination

DEQ
- assume responsibilities for the importation procedures if these have been excluded from the seller’s obligations, in which case “duty paid’’ should be replaced with “duty unpaid”
- arrange the carriage from the port of discharge to the final destination

DDU
- take delivery of the goods
- carry out the importation procedures and pay the customs charges

DDP
- take delivery of the goods