Incoterms (international commercial terms) - Essay Example

International Commercial TermsIncoterms (international commercial terms) are generally accepted definitions of the obligations of both the seller and the buyer, with regards to international trade. Although they don’t provide the actual detailed contract obligations, these terms are generally accepted by businesses and governments across the world and act as a way to create understanding in the global business, especially with regard to delivery of products. Incoterms are usually coded as three letter codes which define how a transaction is to be handled and the obligations of the buyer and the seller.

However, as Seyoum (145) says, they are a rules and not laws and therefore hardly enforceable by government. EXW – Ex Works (named place of delivery)This term leaves the buyer to carry out most of the responsibilities in the business transaction and the seller only has to provide the goods. It mean that the seller will only provide the goods and the buyer will take care of the goods in terms of transport, insurance etc, from the point of purchase until they reach his destination.CPT – Carriage Paid To (named place of destination)In this term of trade in the international business, the seller takes a little more responsibility in the transaction and is expected to provide for transport of the goods from his premise to the point of export.

However, from this point, the buyer takes over responsibility of the goods in terms of shipment transport, insurance of the goods as well as paying duties both tat the port of export and at the port of import. CIP – Carriage and Insurance Paid to (named place of destination)In this arrangement, the responsibility of the seller increases a notch higher and he is expected to take care of the transport as well as the insurance of the goods. However, the seller is relieved from the responsibility of the goods as soon as the goods are taken over by the first carrier.

DAP – Delivered at Place (named place of destination)The seller arranges for the transport of the goods to the point of destination, but unlike in the DAT terms, the seller is not responsible for unloading. This reduces the costs as well as the risks of the seller, since unloading costs some money and increases the risk of damage of goods. DAT – Delivered at Terminal (named terminal at port or place of destination)The seller delivers the goods, just as is DAP terms, but is further expected to unload the goods for the transaction to be considered as complete.

DDP – Delivered Duty Paid (named place of destination)This incoterm leaves the most responsibility of the supplier of the goods and the least responsibility to the buyer. This is because the seller is responsible for the delivery of goods to the point of destination, pays all the export and import duties as well as insurance. The only responsibility for the buyer is to unload the goods on arrival.Sea and inland waterway transportFAS – Free Alongside Ship (named port of shipment)This term splits the responsibilities in two, for the seller as well as the buyer.

The seller is responsible for the h goods in terms of paying for transport and insurance until the goods are delivered at the point of shipment while the buyer takes over the responsibility of the goods.FOB – Free on Board (named port of shipment)This term is like FAS but the seller has to place the goods on board a shipment vessel designated by the buyer. Once the goods are placed on a ship, the costs of insurance and transport are transferred to the buyer, but the seller has to pay for import duties while the seller will pay the export duties.

CFR – Cost and Freight (named port of destination)The seller is responsible for delivering the goods to the port of destination. However, the seller is not responsible for the goods after they are placed on the ship.CIF – Cost, Insurance and Freight (named port of destination)This term is like CFR with the addition of the seller paying for maritime insurance for the goods.There are numerous international commercial terms which have been scrapped off in order to deal with modern needs of international trade.

These terms include the DAF, DES, DEQ and the DDU. Works CitedSeyoum, Belay. Export-Import Theory, Practices, and Procedures. London, NY: Routledge, 2012.