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INCOTERMS are the essential clauses of international trade activities; it specified delivery terms and detailed responsibilities of the seller, the buyer and the time of transfer ricks between buyers and sellers when choosing that delivery terms
According to Incoterms 2010 delivery terms are divided into 2 groups:
The common terms used to transport any type of transportation:
• EXW - Ex Works
• FCA - Free Carrier
• CPT - Carriage Paid To
• CIP - Carriage and Insurance Paid
• DAT - Delivered At Terminal (new)
• DAP - Delivered At Place (new)
• DDP - Delivered Duty Paid
The only terms used for shipping or inland waterway:
• FAS - Free Alongside Ship
• FOB - Free On Board
• CFR - Cost and Freight
• CIF - Cost, Insurance and Freight
In fact, the terms are often used as EXW, FOB and CIF.
Term EXW (Ex Work): this term stipulates minimum responsibilities of the seller for goods; the seller only has the obligation to ensure the goods are available for purchase at plant. All remaining responsibilities include loading and unloading of goods, export procedures, freight, risks and costs incurred after the receipt of goods belong to the buyer. Buyers should consider the ability to transport and complete export procedures at purchase place if applying this term.
FOB (Free on Board): FOB traditionally stipulates that risks are transferred from the seller to the buyer when goods go through the ship rail. However, this provision was not reasonable in practice, so that Incoterms 2010 have changed. According to Incoterms 2010, goods are considered delivered and risks are transferred from the seller to the buyer when goods have been loaded on deck at the specified loading port. The seller is responsible making export procedures, shipping goods to loading port, loading goods on ships until goods have been shipped. The buyer is responsible for buying cargo insurance, freight and tasks later.
CIF (Cost Insurance and Freight): similar to FOB, the risks are transferred to the buyer when the goods have been loaded on deck. However, in comparison with FOB, he seller has to bear extra costs to buy cargo insurance, freight to the port of goods unloading and loading.
Corresponding to the level of responsibility and constituted costs. Cost of goods under EXW term is the lowest, followed by FOB and CIF if the highest.
To choose appropriate applicable term, the parties should consider carefully freight capacity and profitability that can be achieved.
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