INTERNATIONAL CONTRACT TERMS: Since in international transactions, traders are from diverse nations, specific term should be interpreted in a similar way by all the parties concerned. Otherwise, disputes are bound to arise. To solve this problem the International Chamber of Commerce (ICC) Paris has developed 'Incotem'. These terms are commonly used in export-import transactions. These terms have been revised several times since they have been introduced to incorporate new commercial practices. The current version of Incoterms has been issued in 1990. Incoterms have been almost universally adopted. Even the socialist countries, including Russia and China; use Incoterms. Let us discuss them briefly.
1. Ex-work (Ex-'CV): 'Ex-works' means that the seller fulfils his obligation to deliver when he has made the goods available at his premises (i.e., works, factory,. warehouse, etc.) to the buyer. The buyer bears all costs and risks involved in taking the goods from the seller's premises to the desired destination. This term thus represents the minimum obligation for the seller.
2. Free Carrier (FCA): Free carrier means that the seller's obligations are fulfilled when the goods are delivered to the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, the seller may choose within the place or range stipulated where the carrier shall take the goods into his charge. This term may be used for any transport.
3. Free Alongside Ship (FAS): This means that the seller fulfils his obligation to deliver when the goods have been placed alongside the vessel on the quay or in lighters at the named port of shipment. The buyer has to bear all costs and risks of loss or damage to the goods from that point. This term can only be used for sea or inland waterway transport.
4. Free On Board (FOB): This means that the seller fulfils his obligation to deliver when the goo& have passed over the ships rail at the named port of shipment. The buyer has to bear all costs and risks of loss or damage to the goods from that point. This term can only be used for sea or inland waterway transport.
5. Cost and Freight (CFR): This means that the seller must pay the costs and freight necessary to bring the goods to the named port of destination. The risk of loss of or damage to the goods after the goods have been delivered on board the vessel is transferred to the buyer. This term can only be used for sea and inland waterway transport.
6. Cost Insurance and Freight (CIF): This means that the seller has the same obligations as under CFR, but with the addition that he has to procure inarine insurance against the buyer's risk of loss of or damage to the goods during the carriage. The term can only be used for sea and inland waterway transport.
7. Carriage Paid to (CPT): This means that the seller pays the freight for the carriage of the goods to the named destination. The risk of loss of or damage to the goods is transferred to the buyers when the goods have been delivered into the custody of the carrier.
8. Carriage and Insurance Paid to (CIP): This means that the seller has the same obligation as under CPT but with the addition that the seller has to procure cargo insurance against the buyer's risk of loss of or damage to the goods during the carriage.
This term may be used for any mode of transport.
9. Delivered at Frontier (DM): This means that the seller fulfils his obligation to deliver when the goods have been made available, cleared for export, at the named point and place at the frontier, but before the customer border of the adjoining country. This term is primarily intended to be used when goods are to be carried by rail or road, but it may be used for any mode of transport.
10 Delivered Ex-Ship (DES): This means that the seller fulfils his obligation to deliver when the goods have been made available to the buyer on board the ship un cleared for import at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination. The term can only be used for sea or inland waterway transport.
I I . Delivered Ex-Quay (Duty Paid) (DEQ): 111s means that the seller fulfils his obligation to deliver when he has made the goods available to the buyer on the quay at the named port of destination. The seller has to bear all risks and costs of delivering the goods thereto. This term can only be used for sea or inland waterway transport.
12. Delivered Duty Unpaid (DDU): This means that the seller fulfil$ his obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear the costs and risks involved in bringing the goods thereto (excluding duties, taxes and other official charges payable upon importation). The seller also bears the costs and risks of carrying out customs formalities. This tern can be used in all modes of transport.
13. Delivered Duty Paid (DDP): This means that the seller fulfils his obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear the risks and costs. including duties, taxes and other charges of delivering the goods thereto. The seller represents maximum obligation. This term can be used in all des of transports.
Incoterms set out the rights and the obligations the buyer and the seller for each of the terms. Therefore, each party knows precisely what he is supposed to do and in turn what he can expect from the other party. Consequently, the scope of misunderstanding and dispute becomes less. There is, however, one point that you must note. Incoterms is not a treaty or a convention which has been adopted by the trading nations. This is only a document prepared by a business organisation. Therefore, to make Incoterms applicable to an export contract, the parties must specifically mention that they would like their contract to be interpreted as per Incoterms.