Incoterms 2010

Incoterms- A series of international sales terms by the International Chamber of Commerce (ICC). Widely used in international commercial transactions, it allows trading across the globe to be straightforward and effortless.

Mainly used to divide transaction costs and responsibilities between buyer and seller at the same time reflecting the transportation practices. There are 13 Incoterms to choose from during a transaction and the terms more commonly used are,

EXW – Ex Works (named place)

• Seller makes the goods available at his premises.
• Buyer is responsible for all charges

FOB – Free on Board (named loading port)

• Seller must load the goods on board the ship nominated by the buyer, cost and risk being divided at ship’s rail.
• Maritime transport only.

FOB does not include the transportation of the goods – Certain clients would want to arrange using their own forwarder.

CIF – Cost, Insurance and Freight (named destination port)

• Seller must pay the costs and freight to bring the goods to the port of destination.- Risk is transferred to the buyer once the goods have crossed the ship’s rail.
• Seller must also pay for insurance for the buyer.
• Maritime transport only.

DDU – Delivered Duty Unpaid (named destination place)

• Seller delivers the goods to the buyer to the named place of destination in the contract of sale.
• Seller does not need to pay Import duties and taxes.
• The buyer is responsible for the costs and risks for the unloading, duty and any subsequent delivery beyond the place of destination.

DDP – Delivered Duty Paid (named destination place)

• Seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty.
• Seller may also need to pay Value Added Tax or Sales tax for the buyer.

Prices of goods vary due to the different terms used in the transaction- DDU and DDP pricing is higher than FOB prices due to the transportation included etc.

ODM always state the Inco terms when sending quotations to clients, informing them the term they are paying for when an order is placed.

See also Puzzle for Incoterms which you can use to explain to customers – available from ODMasia