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International Commercial Terms
(Incoterms or Terms of Trade)
The Incoterms, which are also known as terms of trade, are standard
trade definitions most commonly used in international sales contracts. Developed
and administered by the International Chamber of Commerce in Paris (ICC), Incoterms
are universally recognised and adhered to by the major trading nations of the world.
Incoterms describe the supplier and buyer's obligations and specify the point when
the responsibilities for the transportation costs shift. There are currently 13
Incoterms in use but we will only explain the Incoterms that are most frequently
used in Australian Imports/Exports.
1.
EX-WORKS
2. FOB
3.
CFR
4. CIF
5. DDU
6. DDP
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1. EX-WORKS - Ex factory
Under Ex-works the seller minimizes his risk by only making
the goods available at his own premises.
Ex-works represents the minimum involvement of the supplier and the maximum involvement
of the buyer in the arrangement of the transportation of the goods from the premises
of manufacture to their premises.
Buyers Obligations under the Ex-works term;
Inland freight
Export customs clearance
Origin port charges
Payment of customs charges and taxes in Australia
Main carriage/freight
Cargo (marine ) insurance
Unloading from the main carrier and port charges
Customs clearance in buyers country
Payment of customs duties and taxes in buyers country
Inland freight in buyers country
Other costs and risks in buyers country
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2. FOB - Free on Board
FOB is one of the most common terms used in international
trade. Under FOB the supplier is responsible for delivering goods to the named port,
export customs clearance and loading them onto the vessel.
The point of transfer of responsibilities under FOB is described as the point when
the goods pass the ship's rail. That means that if during the loading onto the ship,
the goods would fall on the wharf or into the water, the supplier would be responsible
for the losses,
but if the goods fall on the deck of the ship, the losses are the buyers.
Buyers Obligations under FOB Terms;
Main carriage/freight
Cargo (marine) insurance
Unloading from the main carrier and port charges
Customs clearance in buyers country
Payment of customs duties and taxes in buyers country
Inland freight in buyers country
Other costs and risks in buyers country
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3. CFR - Cost and Freight (formerly C &
F changed 1990)
Cost and freight - The supplier is responsible for export
customs clearance, delivering the goods to the named port of destination.
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4. CIF - Cost, Insurance and Freight
Cost, Insurance and Freight - Responsibility of supplier
to arrange export customs clearance, delivery of goods to named port of destination
and insurance of goods.
Buyers Obligations under the CIF & CRF terms;
Customs clearance in buyers country
Payment of customs duties and taxes in buyers country
Inland freight in buyers country
Other costs and risks in buyers country
Marine Insurance (CIF only)
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5. DDU - Delivered Duty Unpaid
All costs are to the supplier until the goods arrive at
the named place of destination. Duty is paid by the buyer in the buyer's country.
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6. DDP - Delivered Duty Paid
This service is basically a door-to door service provided
by the supplier where he would bear the entire risk and the entire cost of shipment
to buyer's door. Buyer has no control. This is the same as DDU except the duty is
also paid by shipper.
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