Incoterms 2000 Guide

Published: 15th November 2009
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Can't understand Chinese and you can't remember your basic school French? No problem, you'll have no trouble understanding traders around the world once you've got your head around Incoterms.

If you've ever wondered about those 3 letter abbreviations - FPB, CIF Manchester,FAS Mumbai - then continue reading.

Incoterms are used by import-export traders globally to specify the terms of their sales contracts, so it would be worth your while understanding what they mean.

Traders the world over find that communicating with each other is made much easier once Incoterms (International Commercial Terms) are used.

So that buyers and sellers can work out exactly what their costs and responsibilities are during any trade deal, both parties need to be clear about what the terms of the deal are. Points of great interest in any transaction occur when ownership and payment responsiblities transfer from one party to the other. Incoterms make it clear when these points are reached. So the system allows all parties to easily determine which of them is charged for what aspect of the trade and who takes on certain risks at particular points during the trade.

A standardised set of abbreviations was compiled by the Paris based International Chamber of Commerce (ICC) in 1936.

The definitions were established from the point of view of the seller. Whilst they are used to agree where responsibility changes hands geographically, please note that they do not deal with ownership of the goods being sold.

The terms range from EXW (Ex Works) which is the case where the buyer pays for insurance, shipment and all fees to the other extreme - DDP (Delivery Duty Paid) where the seller takes on all the costs of delivery.

Copyright of the 13 abbreviated terms belongs to the ICC.

Strict rules exist to govern how they are used and what they mean. The International Chamber of Commerce, ICC, recommends that ' Incoterms 2000' be referred to whenever the terms are used and it is generally recommended that the actual place where the handover of responsibilities takes place is included with the Incoterms.

So a correct use would be: CPT Tokyo Incoterms 2000.

Although they are not legally binding, their universal acceptance means they should be mentioned as early as possible in any negotiation and should definitely be written into the contracts to avoid misunderstandings later on.

A thorough understanding of how to use Incoterms should ensure you avoid most of the major problems connected with international trade.

And here they all are:

EXW, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAF, DES, DEQ, DDU, DDP.

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