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When commercial traders enter into a
contract for the purchase and sale of goods they are free to negotiate
specific terms of their contract. These terms include the price,
quantity, and characteristics of the goods. Every international
contract will also contain what is referred to as an Incoterm
(international commercial term). The Incoterm selected by the parties
to the transaction will determine which party pays the cost of each
segment of transport, who is responsible for loading & unloading of
goods, and who bears the risk of loss at any given point during a
given international shipment. Incoterms also influence Customs
valuation basis of imported merchandise.
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Incoterms are overseen and administered by
the International Chamber of Commerce in Paris and are adhered to by
the major trading nations of the world. There are currently 13
Incoterms in use, and they can be considered on the basis cited above.
All the current Incoterms are described below in ascending order of
seller responsibility. However, Ex-works, Free on Board, Cost
Insurance Freight, and Delivery Duty Paid are the most frequently used
Incoterms for NextLinx’ purposes.
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Group
E (Departure) - Under EXW, the seller minimizes his risk by making
the goods available at his factory or place of business. |
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Ex-Works (EXW)
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The seller (exporter) makes the goods available to the
buyer (importer) at the seller's premises. The buyer is responsible
for all transportation costs, duties, and insurance, and accepts risk
of loss of goods immediately after the goods are purchased and placed
outside the factory door. The ExWorks price does not include the price
of loading goods onto a truck or vessel, and no allowance is made for
clearing customs. If FOB is the Customs valuation basis of the goods
in the country of destination, the transportation and insurance costs
from the seller's premises to the port of export must be added to the
ExWorks price.
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Group F (Main Carriage Not Paid By Seller) |
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Free Alongside Ship (FAS)
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The seller transports the goods from his place of
business, clears the goods for export and places them alongside the
vessel at the port of export, where the risk of loss shifts to the
buyer. The buyer is responsible for loading the goods onto the vessel
(unless specified otherwise) and for paying all costs involved in
shipping the goods to the final destination.
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Free Carrier (FCA)
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The seller (exporter) clears the goods for export and
delivers them to the carrier and place specified by the buyer. If the
place chosen is the seller’s place of business, the seller must load
the goods onto the transport vehicle; otherwise, the buyer is
responsible for loading the goods. Buyer assumes risk of loss from
that point forward and must pay for all costs associated with
transporting the goods to the final destination.
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Free On Board (FOB)
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The seller (exporter) is responsible for delivering
the goods from his place of business and loading them onto the vessel
of at the port of export as well as clearing customs in the country of
export. As soon as the goods cross the “ships-rails” (the ship’s
threshold) the risk of loss transfers to the buyer (importer). The
buyer must pay for all transportation and insurance costs from that
point, and must clear customs in the country of import. An FOB
transaction will read “FOB, port of export”. For example, assuming the
port of export is Boston, an FOB transaction would read “FOB Boston”.
If CIF is the Customs valuation basis, international freight and
insurance must be added to the FOB value.
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Group C (Main Carriage Paid By Seller)
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Cost and Freight (CFR)
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The seller (exporter) is responsible for clearing the
goods for export, delivering the goods past the ships rail at the port
of shipment and paying international freight charges. The buyer
assumes risk of loss once the goods cross the ship’s rail, and must
purchase insurance, unload the goods, clear customs, and pay for
transport to deliver the goods to their final destination. If FOB is
the Customs valuation basis, the international freight costs must be
deducted from the CFR price.
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Cost, Insurance and Freight (CIF)
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The seller (exporter) is responsible for delivering
the goods onto the vessel of transport and clearing Customs in the
country of export. He is also responsible for purchasing insurance,
with the buyer (importer) named as the beneficiary. Risk of loss
transfers to buyer as the goods cross the ship’s rail. If these goods
are damaged or stolen during international transport, the buyer owns
the goods and must file a claim based on insurance procured by the
seller. The buyer must clear customs in the country of import and pay
for all other transport and insurance in the country of import. CIF
can be used as an Incoterm only when the international transport of
goods is at least partially by water. If FOB is the Customs valuation
basis, the international insurance and freight costs must be deducted
from the CIF price. A CIF transaction will read CIF, port of
destination. For example, assuming that goods are exported to the port
of Los Angeles, a CIF transaction would read “CIF Los Angeles”.
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Carriage Paid To (CPT)
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The seller (exporter) clears the goods for export,
delivers them to the carrier and is responsible for carriage costs to
the named place of destination. Risk of loss transfers to buyer once
the goods are transferred to the carrier and the buyer must insure the
goods from that time on. If FOB is the Customs valuation basis, the
international freight cost must be deducted from the CPT price.
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Carriage and Insurance Paid To (CIP)
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The seller transports the goods to the port of export,
clears Customs, and delivers them to the carrier. From that point risk
of loss shifts to the buyer. Seller is responsible for carriage and
insurance costs to the named place of destination. The buyer is
responsible for all costs, and bears risk of loss from that point
forward. If FOB is the Customs valuation basis, international freight
and insurance costs need to be deducted from the CIP price.
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Group D (Arrival)
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Delivered At Frontier (DAF)
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The seller (exporter) is responsible for all costs
involved in delivering the goods to the named point and place at the
frontier. Risk of loss transfers at the frontier. The buyer must pay
the costs and bear the risk of unloading the goods, clearing Customs,
and transporting the goods to the final destination. If FOB is the
Customs valuation basis, the international insurance and freight costs
must be deducted from the DAF price.
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Delivered Ex-Ship (DES)
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The seller (exporter) is responsible for all costs
involved in delivering the goods to a named port of destination. Upon
arrival, the goods are made available to the buyer (importer) on-board
the vessel. Therefore, the seller is responsible for all costs/risk of
loss prior to unloading at the port of destination. The buyer
(importer) must have the goods unloaded, pay duties, clear Customs and
provide inland transportation & insurance to the final destination.
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Delivered Ex-Quay (DEQ)
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The seller (exporter) is responsible for all costs
involved in transporting the goods to the wharf (quay) at the port of
destination. The buyer must pay duties, clear Customs, and pay the
cost/bear the risk of loss from that point forward. If FOB is the
Customs valuation basis, the international insurance and freight
costs, in addition to unloading costs, must be deducted from the DEQ
price.
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Delivered Duty Unpaid (DDU)
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The seller (exporter) is responsible for all costs
involved in delivering the goods to a named place of destination where
the goods are placed at the disposal of the buyer. The buyer
(importer) assumes risk of loss at that point and must clear Customs
and pay duties and provide inland transportation & insurance to the
final destination.
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Delivered Duty Paid (DDP)
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The seller (exporter) is responsible for all costs
involved in delivering the goods to a named place of destination and
for clearing Customs in the country of import. Under a DDP Incoterm,
the seller provides literally door-to-door delivery, including Customs
clearance in the port of export and the port of destination. Thus the
seller bears the entire risk of loss until goods are delivered to the
buyer’s premises. A DDP transaction will read “DDP named place of
destination”. For example, assuming goods imported through Baltimore
are delivered to Silver Spring, the Incoterm would read “DDP, Silver
Spring”. If CIF is the Customs valuation basis, the costs of unloading
the vessel, clearing Customs, and delivery to the buyer’s premises in
the country of destination including inland insurance, must be
deducted to arrive at the CIF value.
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