Coming to terms

As we wrote last spring ("Making sure nothing's lost in translation," FastLane, May 2010), for those new to the foreign trade game, one of the top concerns is likely to be the delivery arrangements—in particular, who's responsible for costs like freight, insurance, customs charges, and damage in transit. To clarify matters, the International Chamber of Commerce (ICC) has published a list of International Commercial Terms, or Incoterms, which are internationally recognized and clearly define both the buyer's and seller's obligations in common transactions. The intent is to cut down on the uncertainty arising from differing interpretations of terms of sale from one country to another.

Since that column appeared, the ICC has published a revised set of terms, known as Incoterms 2010. In addition to cutting the number of terms to 11 from 13, the chamber has also reclassified them. The older terms (Incoterms 2000) were divided into four groups, based on where responsibility transferred from one party to the other. The new terms are divided into two groups, based on whether they apply to all modes of transportation or are specific to ocean and inland waterway transport.

Although this might sound confusing, the alterations are relatively minor. In fact, nine of the terms remain unchanged. What follows is a short summary of the Incoterms 2010, with a few notes on the changes:

Incoterms for all modes

Ex-Works means the buyer assumes total responsibility for the shipment. Delivery is accomplished when the product is handed over to the buyer's representative at the plant or DC. The buyer is responsible for freight costs, insurance, export and import clearance, and all customs charges.

FCA (Free Carrier) provides that the seller fulfills his responsibility when he delivers the product to the carrier.

CPT (Carriage Paid To) provides that the seller pays transportation costs and export clearance charges, but the buyer pays for insurance.

CIP (Carriage and Insurance Paid To), a term used primarily for multimodal moves, is essentially the same as CPT, except the seller must also purchase cargo insurance in the buyer's name.

DDP (Delivered Duty Paid) means the seller is responsible for all risks and charges up to the consignee's door. This is the maximum obligation that can be assumed by a seller.

DAT (Delivered at Terminal) (new). Delivery is accomplished when goods are unloaded and placed at the disposal of the buyer at a named terminal.

DAP (Delivered at Place) (new). Delivery is accomplished when goods arrive and are ready for unloading at the destination.

(Note: These last two terms replace the 2000 Incoterms "Delivered at Frontier," "Delivered Ex Ship," "Delivered Ex Quay," and "Delivered Duty Unpaid.")

Incoterms for ocean and inland waterway transport

FOB (Free on Board) means that the seller is responsible for getting the goods to a port. The buyer bears the cost and responsibility from that point on.

FAS (Free Alongside Ship) requires the seller to deliver the product alongside a given vessel at a port.

CFR (Cost and Freight) deals with the cost of the merchandise as well as the freight costs. The seller is responsible for the product and the transportation costs to the destination port.

CIF (Cost, Insurance, and Freight) provides that the seller pays for insurance in addition to the product and transportation costs.

Information on the new terms can be found on a number of websites, but the UPS site contains a particularly helpful summary. It can be downloaded at www.ups-scs.com/tools/incoterms.pdf.