Volonakis Law Firm , lawyers

Partnering international businesses in Greece

INCOTERMS© in international trade

When merchants conclude a contract for purchase and sale of goods, they may freely negotiate the special terms with regard to price, quantity, properties, etc., as well as carriage, risks and surrender of the goods. Businesses involved in exports, however, are frequently faced with different interpretations of identical formula and national commercial practices. To counteract these difficulties, the parties to the contract can use what are known as Incoterms©, which offer a range of international rules for interpreting the main forms of contract used. Specifically, the Incoterm agreed by the parties determines which party is liable for the respective costs in the transport chain, for loading and unloading the goods and Customs clearance and at what point a party bears the risk of loss for an international shipment. Incoterms© also affect the basis on which the imported goods are valued for Customs.

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

Incoterms© (International Commercial Terms) are devised by the International Chamber of Commerce in Paris and observed by the most important trading nations. All 13 Incoterms© currently used are listed and explained below according to the Vendor’s increasing responsibility. Use of these Incoterms© is voluntary and must be contractually agreed. The Incoterms© most frequently used in practice are “ex works”, “free on board”, “costs, insurance, freight” and “delivered duty paid”.

N.B.: This entry is also available as a downloadable PDF entitled Importance and effect of INCOTERMS© in international trade (German).

Group E Incoterms© (Departure)

Ex works (EXW)

By using the “ex works” (EXW) term, the seller minimizes his risk, since the goods are made available at his factory or place of business. The seller (exporter) makes the goods available to the buyer (importer) at the seller’s business premises. As soon as the goods are acquired and leave the business premises, the buyer bears the risk of loss and is also responsible for all carriage costs, Customs duties and insurance costs. The “ex works” price does not include the cost of loading the goods onto a vehicle or ship, or Customs clearance. If the Customs valuation basis for the goods in the destination country is “free on board” (FOB), the cost of transporting and insuring the goods shipment from the seller’s business premises to the port of export must be added to the ex works price.

Group F Incoterms© (Main carriage unpaid by seller)

Free alongside ship (FAS)

The seller transports the goods from his place of business, clears the goods for export and places them alongside the ship at the named port, where title and risk of loss transfer to the buyer. Unless otherwise agreed, the buyer is responsible both for loading the goods onto the ship and for paying all costs incurred for shipping the goods to the destination port.

Free carrier (FCA)

The seller (exporter) clears the goods for export and hands them over to the carrier at the place designated by the buyer. If the place chosen by the buyer is the seller’s place of business, the seller must load the goods onto the transport vehicle, otherwise the buyer himself is responsible for loading the goods. From this juncture the buyer assumes both title and the risk of loss and bears all the costs for shipping and transporting the goods to the named destination.

Free on board (FOB)

The seller (exporter) is responsible for transporting the goods from his place of business to the named port, loading onto the ship and clearing the goods for Customs in the exporting country. As soon as the goods are on the ship, title and risk of loss pass to the buyer (importer). From this point the buyer is responsible for all carriage and insurance costs and must also clear the goods through Customs in the importing country. If the Customs valuation basis is based on “costs, insurance, freight” (CIF), international freight and insurance costs are to be added to the “free on board” (FOB) price. The “free on board” (FOB) Incoterm takes the form “FOB, named loading port”.

Group C Incoterms© (Main carriage paid by seller)

Cost and freight (CFR)

The seller (exporter) is responsible for transporting the goods from his place of business to the named port, loading onto the ship, clearing the goods for Customs in the exporting country and paying international freight costs. The buyer assumes the title and risk of loss as soon as the goods are on the ship. From this juncture the buyer must provide insurance cover and bear the costs of unloading, Customs clearance in the importing country and carriage of the goods to the named destination. If the Customs valuation basis is “free on board” (FOB), the international freight costs must be deducted from the “cost and freight” (CFR) price.

Cost, insurance, freight (CFR)

The “cost, insurance, freight” (CIF) Incoterm can only be used if at least part of international carriage of the goods is by water. The seller (exporter) is responsible for transporting the goods from his place of business to the named port, loading onto the ship, clearing the goods for Customs in the exporting country and paying international freight costs and must also bear the corresponding carriage insurance in favour of the buyer (importer). Title transfers when the goods are on the ship. If the goods, which henceforth belong to the buyer, are damaged or stolen during international transportation, the buyer must assert his insurance claim on the basis of the insurance taken out in his favour by the seller. The buyer must bear the cost of Customs clearance, carriage and insuring the goods in the importing country. If the Customs valuation basis is “free on board” (FOB), the international insurance and freight costs must be deducted from the “cost, insurance and freight” (CIF) price. The “cost, insurance, freight” Incoterm takes the form “CIF, named destination port”. If, for example, the goods are exported from Piraeus, the wording is “CIF, Piraeus”.

Carriage paid to (CPT)

The seller (exporter) clears the goods for export, hands them over to the carrier and is responsible for the cost of carriage to the named destination. The transfer of title takes place on hand-over to the carrier. From this point on the buyer must insure the goods. If the Customs valuation basis is “free on board” (FOB), the international freight costs must be deducted from the “carriage paid to” (CPT) price.

Carriage and insurance paid (CIP)

The seller transports the goods to the named port of export, clears them through Customs and hands them over to the carrier, and then the title transfers to the buyer. The seller is responsible for carriage and insurance costs until the goods reach the agreed named destination. As of when the goods arrive there, the buyer is then responsible for all costs and also bears the risk of loss. If the Customs valuation basis is “free on board” (FOB), the international freight and insurance costs must be deducted from the “carriage and insurance paid” (CIP) price.

Group D Incoterms© (Arrival)

Delivered at frontier (DAF)

The seller (exporter) is responsible for all costs incurred until hand-over at the named frontier location. Transfer of title takes place at the border. The buyer must bear the risks and costs of unloading the goods, clearing them through Customs and carriage to the final destination. If the Customs valuation basis is “free on board” (FOB), the international insurance and freight costs must be deducted from the “delivered at frontier” (DAF) price.

Delivered ex ship (DES)

The seller (exporter) is responsible for all costs incurred until hand-over of the goods at the named destination port. After arrival the goods are available to the buyer (importer) on board the ship. This means that the buyer is responsible for all the costs and risks incurred as a result of unloading the goods at the destination port. The buyer (importer) must unload the goods, clear them through Customs, pays Customs duty and take care of domestic transportation and insurance until they reach the final named destination.

Delivered ex quay (DEQ)

The seller (exporter) is responsible for all costs incurred during carriage of the goods to the quay of the named destination port. The buyer must pay Customs duty, clear the goods through Customs and from this juncture pay all costs and assume the risk of loss. If the Customs valuation basis is free on board (FOB), the international insurance and freight costs, plus the unloading costs, must be deducted from the “delivered ex quay” (DEQ) price.

Delivered duty unpaid (DDU)

The seller (exporter) is responsible for all costs incurred until hand-over of the goods at the named destination. The goods are made available to the buyer at this destination. At this point the title and risk of loss pass to the buyer (importer). The buyer must then clear the goods through Customs, pay Customs duty and provide domestic transport and insurance cover to the final named destination.

Delivered duty paid (DDP)

The seller (exporter) is responsible for all costs incurred until hand-over of the goods at the agreed destination. According to the “delivered duty paid” (DDP) Incoterm, the seller literally takes care of carriage from door to door, including Customs clearance at the port of export and destination port. Transfer of title occurs at the point at which the goods are handed over to the buyer, usually on his business premises. The seller consequently bears all the risk of loss until hand-over of the goods to the buyer at the buyer’s business premises. If the Customs valuation basis is “cost, insurance, freight” (CIF) the costs for unloading, Customs clearance, domestic transport and insurance for the goods to the buyer’s business premises in the destination country must be deducted from the “delivered duty paid” (DDP) price. The “delivered duty paid” Incoterm (DDP) takes the form “DDP, named destination place”. If, for example, goods imported via Patras are to be delivered to Athens, the wording is “DDP, Athens”.