INCO TERMS Meaning & Purpose

Shreyas Suklikar 2009A10 Kumar Mithilesh 2009A44

Logistics & Warehouse Management

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Assignment -I

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INCO TermsInternational Commercial Terms

A set of uniform rules published by International Chamber of Commerce (ICC)

First published in1936, Latest revision in 2000

Agreement for the purchase and shipping of goods internationally Designed to arrange for transfer of responsibility from seller to buyer

Used in codifying the interpretation of trade terms

To prevent disputes in international trade

The purpose of INCO terms is to provide a set of international rules for the interpretation of the most commonly used terms in foreign trade.

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INCO TermsInternational Commercial Terms are used to define:

The mode of delivery

Who has to arrange for customs clearances and licenses

Passage of Title

Transfer of risk and insurance responsibilities

What the delivery terms are

How transport costs will be allocated between the parties

When is a delivery completed

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INCO Terms Vs Contract

Inco terms do not constitute a contract between two parties

- they are contract of sale, not the contract of carriage

Inco Terms will not:

Define contractual rights

Define liabilities between the parties

Specify transport details such as transfer and/or delivery of the

merchandise

Dictate how the title of the merchandise will pass

Dictate obligations with regards to the merchandise prior to and after

delivery

Protect a party from his/her own risk of loss 

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Groups of INCO Terms

INCO terms are Mainly divided into four groups – E, F, C & D

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E The seller puts the goods to the disposition of the buyer in his own premises

F The seller remits the goods to a designated carrier.The buyer assumes the expenses and risks of the main transportation

C The seller assumes the expenses but doesn't support the risks incurred during the main transportation

D The seller supports all expenses and the risks that drive the routing of the goods until the place of destination

INCO term may impact financials of a company

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Types of INCO Terms

Total 13 types (including EXW)

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Group F - Main carriage unpaid

• FCA – Free Carrier (named places)

• FAS – Free Alongside Ship (named loading port)

• FOB – Free on board (named loading port)

Group C – Main carriage paid

• CFR or CNF – Cost and Freight (named destination port)

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

• CPT – Carriage Paid To (named place of destination)

• CIP – Carriage and Insurance Paid (To) (named place of destination)

Group D – Arrival at Destination

• DAF – Delivered At Frontier (named place)

• DES – Delivered Ex Ship (named port)

• DEQ – Delivered Ex Quay (named port)

• DDU – Delivered Duty Unpaid (named destination place)

• DDP – Delivered Duty Paid (named destination place)

Seller’s responsibility increases

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Obligations of Buyer & Seller

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Inco Term Seller’s Primary Duty Buyer’s Primary Duty

EXW -Ex Works (..) Place the goods at the disposal of the buyer at the named place

Take delivery of the goods when they have been placed at his disposal

FCA- Free Carrier(..) 1. Deliver goods at named point2. Provide evidence3. Arrange export clearance

1. Nominate carrier2. Contract for carriage

FAS- Free Along Side (…) 1. Deliver goods alongside ship2. Alongside receipt3. Export clearance

1. Nominate carrier2. Contract for carriage

FOB-Free On Board(…) 1. Deliver goods on board2. Onboard receipt3. Export clearance4. Loading Charges

1. Nominate carrier2. Contract for carriage

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Obligations of Buyer & Seller (contd…)

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Inco Term Sellers Primary Duty Buyers Primary DutyCFR –Cost & Freight (..) 1. Contract of Carriage

2. Deliver goods on board3. Provide evidence (B/L)4. Arrange export clearance5. Unloading Charges

1. Accept delivery of the goods2. Pay costs which are not part of

sellers A/c under the contract of carriage

CIF- Cost Insurance & Freight (..)

1. Contract of Carriage & Insurance2. Deliver goods on board3. Provide evidence (B/L)4. Arrange export clearance5. Unloading Charges

1. Accept delivery of the goods2. Pay costs which are not part of

sellers A/c under the contract of carriage

CPT- Carriage Paid To(…) 1. Contract of Carriage2. Deliver goods to the carrier3. Provide evidence 4. Arrange export clearance5. Unloading Charges

1. Accept delivery of the goods2. Pay costs which are not part of

sellers A/c under the contract of carriage

CIP-Carriage & Insurance Paid To(…)

1. Contract of Carriage & Insurance2. Deliver goods to the carrier3. Provide evidence 4. Arrange export clearance5. Unloading Charges

1. Accept delivery of the goods2. Pay costs which are not part of

sellers A/c under the contract of carriage

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Obligations of Buyer & Seller (contd…)

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Inco Term Sellers Primary Duty Buyers Primary DutyDAF –Delivered at Frontier (..) 1. Deliver goods at named frontier

2. Provide evidence 3. Arrange export clearance

1. Accept delivery of the goods2. Arrange for import clearance

DES- Delivered Ex Ship (..) 1. Deliver goods on board at port of destination

2. Provide evidence 3. Arrange export clearance

1. Accept delivery of the goods2. Arrange for import clearance

DEQ- Delivered Ex Quay (…) 1. Deliver goods on quay ship at port of destination

2. Provide evidence 3. Arrange export clearance

1. Accept delivery of the goods2. Arrange for import clearance

DDU-Delivered Duty Unpaid(…) 1. Deliver goods at place of destination

2. Provide evidence 3. Arrange export clearance

1. Accept delivery of the goods2. Arrange for import clearance

DDP-Delivered Duty Paid (…) 1. Deliver goods at place of destination

2. Provide evidence 3. Arrange export clearance

1. Accept delivery of the goods

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11 of 13http://en.wikipedia.org/wiki/Inco_terms

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Limitations of INCO Terms

They don’t provide for all the duties

They are not all inclusive - They relate to just one of the contracts required to perform international sales transaction

Misinterpretation of contract terms

Ambiguity may arise at the boundary conditions

Inco terms do not deal with consequences of breach of contract and any exemptions from liability owing to various impediments

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References

1. http://en.wikipedia.org/wiki/Inco_terms

2. www.eCheat.com (Topic_32417_20100729)

3. www.ruminainsuranceagency.com

4. http://www.foreign-trade.com/reference/incoterms.cfm

5. http://www.i-b-t.net/incoterms.html

6. www.americanshipper.com

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Thank You