INCOTERMS: shipping terms for importers and exporters in international trade

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Terms of international sales with Incoterms shipping

Incoterms are the standard rules that define the responsibilities of the sellers and buyers under international sales contracts. It is a concept that shows the rights and obligations of sellers and buyers in as much in involve payment and delivery of goods. The rules address the transfer of risks or loss of the goods between the seller and the buyer. The terms of sale clearly indicate the location points for transit that is the collection point and the delivery destinations.

The Incoterms gives particular instructions on the transport routes as well as who is responsible for the paying specific costs in the course of sales. The costs include insurance, transportation charges, customs duty and taxes and delivery charges to the final destination.

International Chamber of Commerce established the set of rules in order for sellers and buyers to understand and clear the confusion of responsibilities on sale transactions. These rules (Incoterms) were first published in 1936 and it has been reviewed overtimes.  The current edition of the rules is Incoterms 2010. The current version of can be used for domestic trade that is within the country.

These set of rules consist of short abbreviation of like three (3) letters showing the responsibility of the seller and buyer.  Incoterms 2010 has eleven (11) set of rules. It is divided into two (2) categories

Incoterms Categories

  • First categories within with 7 rules
  • Second categories with 4 rules

The first category applies to the mode of transportation whether air freight, sea freight or inland routes. It makes it easy for inter-modal transportation. For example, containers shipped through the sea can still be move through truck on the terms of sale on the Incoterms.

Now, let’s highlight the seven rules;

  • Delivered Duty Paid (DDP)
  • Delivered At Place (DAP)
  • Exwork (ExW)
  • Carriage Paid To (CPT)
  • Delivered At Terminal (DAT)
  • Free Carrier (FCA)
  • Carriage and Insurance Paid To (CIP)

The second category applied only to sea and inland water route transport. The carriage begins and ends at the port. It is not right to use these rules if it with include delivery at a terminal or an inland destination. These rules must indicate the place of shipment or delivery destination.

  • Free Alongside Ship (FAS)
  • Free on Board (FOB)
  • Cost and Freight (CFR)
  • Cost Insurance and Freight (CIF)

Importers and exporters need to understand these set of rules in order to safeguard each party interests. It also assists in the analysis of the responsibilities of seller and buyer in any sale transaction.

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Follow Michael Adewale:

International Freight Forwarding & Shipping Consultant

He is a graduate of B.Sc geography from Obafemi Awolowo University, Ile-Ife, Nigeria. He loves logistics and Brand building. He is Chief Operations officer at Distinctcushy Freight, a Freight forwarding company in Lagos, Nigeria. He loves integrity and value honesty with importers and Exporters in Nigeria and abroad.

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