Answer to Question #311295 in Management for pooja

Question

Suppose that you are a manufacturer of textiles and you are planning to expand your business by capturing the export markets in Europe and African regions. In terms of operational issues relating to the carriage and delivery of goods, you are ought to be aware of various trade practices followed in different countries. In this regard, explain various INCOTERMS published by International Chamber of Commerce, that make it easier for a common interpretation. 

Answer 1

First published by ICC in 1936, Incoterms rules provide internationally accepted definitions and rules of interpretation for most common commercial terms used in contracts for the sale of goods. The Incoterms are not mandatory rules for them to receive legal effect, they must be explicitly incorporated by the parties into their contract.

The Incoterms are divided into four principal categories: E, F, C and D.

Category E (Departure), which contains only one trade term, i.e. EXW (Ex Works).

Category F (Main Carriage Unpaid), which contains three trade terms:

• FCA (Free Carrier)
• FAS (Free Alongside Ship)
• FOB (Free on Board)

Category C (Main Carriage Paid), which contains four trade terms:

• CPT (Carriage paid to)
• CIP (Carriage and Insurance paid to)
• CFR (Cost and Freight)
• CIF (Cost, Insurance and Freight)

Category D (Arrival), which contains three trade terms:

• DAP (Delivered at Place)
• DPU (Delivered at Place Unloaded)
• DDP (Delivered Duty Paid)

Each Incoterm contains a set of rules of interpretation for the obligations of both the seller (A1-A10) and the buyer (B1-B10) covering the following issues:

• A1/B1 – General Obligations,
• A2/B2 – Delivery,
• A3/B3 – Transfer of risks,
• A4/B4 – Carriage,
• A5/B5 – Insurance,
• A6/B6 – Delivery/transport document,
• A7/B7 – Export/import clearance,
• A8/B8 – Checking/packaging/marking,
• A9/B9 – Allocation of costs, and
• A10/B10 – Notices.