They are a set of standardized international trade terms that are published by the International Chamber of Commerce.
They are used in international trade contracts to outline matters such as the time and place of delivery and payment, the time when the risk of loss shifts from the seller to the buyer, and the party who pays the costs of freight and insurance.
They do not themselves constitute a contract or supersede the governing law in their jurisdiction.
They can be modified by explicit clauses in a trade contract.
Incoterms were first established in 1936, and the current version, published in 2010, has eleven terms.
Ex Works (EXW)
Ex Works (EXW) is an international trade term that describes an agreement in which the seller (Marbed) is required to make goods ready for pickup at his own place of business.
All other transportation costs and risks are assumed by the buyer.
The seller (Marbed) is only responsible for packaging the goods and making them available at a designated location, such as the seller's warehouse.
Marbed must also help the buyer obtain export licenses or other necessary documentation, but at the buyer's expense.
A variation of the ex works agreement is the free on board (or freight on board) agreement, in which the seller assumes the cost of getting its goods to a shipping terminal and pays all the customs costs to get the goods on board, but the buyer still assumes the cost of finding, contracting and paying the shipping company and the customs costs incurred when the goods reach their country of destination. The buyer also pays all insurance costs.
Ex works agreements should only be undertaken if the buyer is able to bear all the costs and risks involved in the transaction, including import and export documentation and taxes. Though the seller is obligated to help in procuring shipping and customs documents and making sure they accurately reflect the contents of the packages to be shipped, ultimately, the costs are risks all devolve onto the buyer.
Free Carrier - FCA
A free carrier (FCA) is a trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. Costs for transportation and risk of loss transfer to the buyer after delivery to the carrier.
When used in trade terms, the word "free" means the seller has an obligation to deliver goods to a named place for transfer to a carrier.
Free On Board - FOB
Free on board (FOB) is a trade term requiring the seller to deliver goods on board a vessel designated by the buyer. The seller fulfills its obligations to deliver when the goods have passed over the ship's rail.
When used in trade terms, the word "free" means the seller has an obligation to deliver goods to a named place for transfer to a carrier.
Cost, Insurance and Freight - CIF
Cost, insurance and freight (CIF) is a trade term requiring the seller to arrange for the carriage of goods by sea to a port of destination, and provide the buyer with the documents necessary to obtain the goods from the carrier.
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