INCOTERMS (International Commercial Terms) are the Trade terms, published by the International Chamber of Commerce (ICC). These terms are commonly used in international contracts and are of the principle to lay down the rules to characterize the role and the compulsions (both financial and legal responsibilities) between the Sellers and the Buyers, involved in an international commercial transaction involving carriage of merchandise, globally from one place to another. The paper discusses the proportional responsibilities and liable obligations on the Seller and the Buyer under INCOTERMS groups and statements, and how effective the terms can play their role on making the trade communication of legalities easier.

1. COMPARATIVE STUDY OF VARIOUS
INTERNATIONAL COMMERCIAL TERMS
(INCOTERMS) USED IN THE
SALE - PURCHASE CONTRACTS
Fahad Mahmud Mirza
Abstract – INCOTERMS (International Commercial Terms) are became a consistent stamp and a constant risk in international
the Trade terms, published by the International Chamber of trading and shipping. For that reason, in order to encourage
Commerce (ICC). These terms are commonly used in consistency and eliminate confusion, the International
international contracts and are of the principle to lay down the
Chamber of Commerce (ICC) in 1936 developed one standard
rules to characterize the role and the compulsions (both financial
and homogeneous set of IN-(International)-CO-(Commercial)-
and legal responsibilities) between the Sellers and the Buyers,
involved in an international commercial transaction involving TERMS for the traders worldwide to accept and practice.
carriage of merchandise, globally from one place to another. The Since then, these INCOTERMS have played a key role in
paper discusses the proportional responsibilities and liable global business of exchange, and they specifically address
obligations on the Seller and the Buyer under INCOTERMS certain key responsibilities and compulsions, helping institute
groups and statements, and how effective the terms can play momentous and considerable “markers” along the chain of the
their role on making the trade communication of legalities easier. micro-logistics mechanism [2].
I. INTRODUCTION There basic use is to define the relationship between the buyer
and the seller, regarding the mode of delivery and to justify
The economic market and trade traffic of this century beyond
the member who is supposed to organize for customer
doubt consists of single universal market. The Buyers and
clearances and licenses. Along with the passage of title, these
Sellers most of the times find themselves on different
terms are used to illuminate as either who has to obtain
continents in different parts of the world, they communicate
insurance of the goods and merchandise during the transport,
by having a uniform and homogeneous set of trading, chiefly
generally known as the transfer of risks and insurance
known as International Commercial Terms (INCOTERMS) to
responsibilities. From the delivery terms to the justified
help understand and route properly through international
delivery achievement and how the costs will be allocated
transactions and also clarify each of the Buyer’s and Seller’s
among the parties are all covered in these sets INCOTERMS
role in this supply chain of trade and transactions.
[1].
INCOTERMS are a series of various international sales terms,
II. INCOTERMS GROUPS AND UTILITIES
which were first, published by International Chamber of
Commerce (ICC) back in 1936, and then in the present dates There are a total of 13 International Commercial Terms
of 2000, 2009 and now 2010. In the early 1900’s, many of the (INCOTERMS), which are categorized to four major groups
international traders, who were situated in diverse regions of in order of their utility and comprehension [3]:
the world, devised a set of short abbreviations used for certain
frequently practiced trading terms. On the other hand, due to (i) Group – E (Origins Group)
disparity in culture, associations, language and syntax, (ii) Group – F (Carriage NOT PAID by the Seller)
knowledge and experience, translations and linguistics, these (iii) Group – C (Carriage PAID by the Seller)
trading terms had dissimilar meanings for these diverse global (iv) Group – D (Arrival at the Stated Destination)
members of trade. The rise in confusion and common errors

2. From the warehouse to the destination of the delivery, there Using the checkpoints above, it is easier to understand now
are almost 12 milestones or checkpoints in the transport that the Seller is responsible from Checkpoint – 1 to
pattern [6]. For the comprehension of the merchandise Checkpoint – 3, and the Buyer is responsible from
transport track, the milestones (in order of the precedence) are: Checkpoint – 4 to Checkpoint – 12. In some practices, it is
common that the Seller loads the goods on truck or the
(1) Warehouse storage at origin container without charging the loading fees; Checkpoint – 4.
 (2) Warehouse labor at origin
 (3) Export packing B. Group – F
 (4) Loading at origin
The letter “F” is short for the word Free, and this group
 (5) Inland freight
includes terms mentioned here in order of precedence and
 (6) Port receiving charges
responsibilities on Seller,
 (7) Forwarders fee
 (8) Loading on ocean carrier (i) FCA (Free Carrier)
 (9) Ocean/Air freight chargers (ii) FAS (Free Alongside Ship)
 (10) Chargers at foreign shipping-port or the airport (ii) FOB (Free On-Board)
 (11) Customs, taxes and duties abroad, and finally
 (12) Delivery charges to final destination The fundamental characteristics of this group are that Buyer
and Seller have agreed that the Seller is generally responsible
We may use these checkpoints to analyze the maximum level to deliver the commodities or goods to a carrier or location
of responsibilities for Buyer and Seller in the respective designated by the Buyer. Again, once the Seller has
groups, to make the understanding and comprehension of the effectuated the delivery to the specified location by the Buyer,
responsibilities much easier. These terms re applicable for the Seller’s responsibilities tend to cease and the Buyer’s
tangible goods only, are only valid if they have been agreed obligations tend to begin.
upon on clearly contractual terms, and have been named in
purchase agreements, general purchase and sale conditions, B. I. FCA (Free Carrier)
orders, order confirmations etc., or included in a separate
agreement. The FCA (Free Carrier) is added with the name of point of
departure or loading with it, for example, FCA Lahore.
A. Group – E Generally, under this term, the delivery of goods is conducted
on a truck, a rail-car or container at the specified point of
The letter “E” is short for Ex-Works (Ex means “from” and
departure, which are usually the Seller's own premises, or a
Works means “factory or warehouse”), where a named place
designated train station or even a named cargo terminal or into
for shipment is available to the Buyer, not the Seller. And the
the custody of the carrier, all at the Seller's expense. Asides,
Seller will not contract for any transportation. The
the point at origin may or may not be a customs clearance
abbreviation for this group is EXW and an added location
center. Buyer is responsible for the main carriage or freight,
name is tagged with it, for example, EXW Qasim Port.
the freight insurance and other costs and risks associated.
The key characteristic of this group is that the Seller Some manufacturers also use the terms FOT (Free On-Truck)
represents to make the goods available at his own property, or and FOR (Free On-Rail).
his site, to the Buyer. Once the Buyer picks up the goods, the
Seller’s duties and obligations are completed and fulfilled. The FCA term is further divided in to two types; one is the
Obviously, this group forces the condition where the Seller FCA Seller’s Premises, where the Seller is responsible only
has very few obligations and has an extremely low level risk for loading the goods and not responsible for inland freight.
of losses and the title is transferred almost instantaneously in This carries the responsibilities of Seller from Checkpoint – 1
the supply-chain network. Almost from the beginning, it is to Checkpoint – 4 only, and the Buyer has obligations from
the Buyer who ultimately bears the risk of losses and has to Checkpoint – 5 to Checkpoint – 12. The second FCA term is
cover and tolerate with all the hazards and hurdles of the FCA Named Place (International Carrier) where the Seller is
complete transport. Some manufacturers also use the term Ex- responsible for the Inland Freight. This carries the
Factory, which is as same as Ex-Works. responsibilities of Seller from Checkpoint – 1 to Checkpoint –
5, and the Buyer’s obligations from Checkpoint – 6 to
Checkpoint – 12.

3. B. II. FAS (Free Alongside Ship) Accordingly to the INCOTERMS 2000, the Seller had
responsibilities from Checkpoint – 1 to Checkpoint – 6, and
The FAS (Free Alongside Ship) is added with the named port also for Checkpoint – 8: Loading on the Ocean Carrier, and
of origin, for example, FAS Karachi. This term is popular for the Buyer had responsibilities of Checkpoint – 7: Forwarders
the ‘break-bulk shipments’ and with the importing countries fee and then from Checkpoint – 9 to Checkpoint – 12. Then in
using their own vessels. The FAS term requires the Seller to INCOTERMS 2010, the Seller now has responsibilities from
clear the goods for export, which is a turnaround or a reversal Checkpoint – 1 to Checkpoint – 8, including the Checkpoint –
from previous practices mentioned here. Goods are placed in 7: Forwarder’s fee and the Buyer’s obligations start from
the dock shack or at the side of the ship, on the dock or lighter, Checkpoint – 9 to Checkpoint – 12.
within the reach of its loading equipment so that they can be
loaded aboard the ship, all at the Seller's expense. Buyer is C. Group – C
responsible for the loading fee, main freight and shipment
charges, cargo and goods insurance, and all other costs and The letter “C” is short for the word Cost, and this group
concerning risks associated. includes terms here in order of precedence and responsibilities
on Seller,
Accordingly to the INCOTERMS 2000, the Seller was
(i) CFR (Cost & Freight)
responsible from the Checkpoint – 1 to Checkpoint – 6, the
(ii) CIF (Cost Insurance & Freight)
Port Receiving Charges, or Terminal Charges [5]. Recently, in
(iii) CPT (Carriage Paid To…)
INCOTERMS 2010, the Seller is responsible from the
(iv) CIP (Carriage & Insurance Paid To…)
Checkpoint – 1 to Checkpoint – 7, up till the forwarder’s fee,
which was the obligation for the buyer in INCOTERMS 2010
The essential characteristics of this grouping are that the Seller
[6]. Now the Buyer has obligations from Checkpoint – 8 to
is obligated for contracting and paying for the carrying and
Checkpoint – 12. The Delivery is accomplished once the
moving of goods but has no obligation to bear with additional
goods are handed over to the Buyer’s Forwarder for insurance
costs nor has to bear with any sort of risk associated to losses,
and transportation.
once the goods have been shipped.
B. III. FOB (Free On-Board)
C. I. CFR (Cost & Freight)
The FOB (Free On-Board) is added with the named port of
The CFR (Cost & Freight) is added with the named port of
origin, the loading container or vessel, at the Seller’s expense,
destination, at the Seller’s expense, for example CFR Karachi.
for example FOB Singapore. Under the rules of INCOTERMS
Under the rules of INCOTERMS 1990, the term is chiefly
1990 onwards, the FOB term is specifically used for ocean
used for ocean freights only. But still, many practice this term
and in-land waterway transportation of goods and products,
for air cargo trade as well.
and the Seller uses his freight forwarder to move the
commodities to the port of designated port of origin.
This term refers towards two distinct and separate
responsibilities; first one is dealing with the actual cost of
Although the rule is set that FOB be used for waterways
merchandise; C, and the other one refers to the freight charges
always and only, many importers and exporters still use the
to a predetermined destination point; F. It is the Seller’s prime
FOB term in case of air freights as well. North American
responsibility under this term to acquire the goods from their
exporters and importers have developed some new functions,
door to the port of target, and delivery is completed at this
such as dealing on the open account and consignment basis,
time. It is then the Buyer's responsibility to cover insurance
using the shipping terms FOB Origin and FOB Destination
from the port of origin or port of shipment till his very own
[4]. The term FOB Origin coins that the Buyer is responsible
door. Provided that the Seller is responsible for transportation,
for the freight and other costs plus risks. And the FOB
the Seller also chooses the forwarder under the rules.
Destination defines that the Seller is accountable for freight
and other costs and risks. These terms are not the part of
In this term of CFR, the Seller has responsibilities from
INCOTERMS and should always be avoided in international
Checkpoint – 1 to Checkpoint – 9, and the Buyer has
trades.
obligations from Checkpoint – 10 to Checkpoint – 12.

4. C. II. CIF (Cost Insurance & Freight) D. Group – D
The CIF (Cost Insurance & Freight) is added with the named The letter “D” is short for the word Delivery/Delivered, and
port of destination at the Seller’s expense, for example, CIF this group includes terms mentioned here in order of
Dubai. Under the rules of INCOTERMS 1990, the term is precedence and responsibilities on Seller;
primarily dedicated for the use of ocean freight and trade, but
(i) DAF (Delivery-At-Frontier)
as of like other terms, this term is also used for air freight
(ii) DES (Delivered Ex-Ship)
purposes by many traders under the old mind-set. This term is
(iii) DEQ (Delivered Ex-Quay)
arranged similar to the CFR as previously discussed, but
(iv) DDU (Delivered Duty Unpaid)
instead of the Buyer insuring the products for the marine
(v) DDP (Delivered Duty Paid)
phase of the voyage, the Seller will assure the goods and
products. With this understanding and agreement, the Seller This grouping is exactly the opposite of the Group – E. In
usually chooses his own forwarder, and the delivery is other words, the Seller has all the obligations of costs, risks,
accomplished at the port of destination. insurance, duties etc. and must make the merchandise
available at the named place of destination, which is usually
In this term of CIF, the Seller has responsibilities from named by the Buyer and may also be the Buyer’s factory.
Checkpoint – 1 to Checkpoint – 9, and the Buyer has his
obligations started from Checkpoint – 10 to Checkpoint – 12. D. I. DAF (Delivery-At-Frontier)
C. III. CPT (Carriage Paid To…) The DAF (Delivery-At-Frontier) is added with the specified
named point at the border, all at the Seller’s expense, for
The CPT (Carriage Paid To…) is added with named place of example DAF Hong Kong. In this term, the Seller's
destination (discharge) at the Seller’s expense, for example responsibility is to employ a forwarder to take goods to a
CPT Manhattan. In CPT transactions, the Seller has the same named border line, which is usually a border-crossing point,
obligations found with the term CIF, in addition that the Seller and clear them for export and the delivery occurs at that very
has to buy freight insurance, naming the Buyer as the insured time. The Buyer's responsibility is to arrange with their
while the goods are in transit. forwarder for the pickup of the goods after they are cleared for
export, carry them across the border, clear them for
The term of CPT is configured to adjust responsibilities of importation and cause the delivery. In most cases, the buyer's
Seller from Checkpoint – 1 to the Checkpoint – 10, and the forwarder handles the task of accepting the goods at the border
Buyer has obligations from Checkpoint – 11 to Checkpoint – across the foreign soil.
12.
In this term, the Seller has his responsibilities from
C. IV. CIP (Carriage & Insurance Paid To…) Checkpoint – 1 to Checkpoint – 10, and the Buyer has
obligations from Checkpoint – 11 and Checkpoint – 12.
The CIP (Carriage & Insurance Paid To…) is added with the
named place of destination at the Seller’s expense, for D.II. DES (Delivered Ex-Ship)
example CIP Los Angeles. This term is primarily used for
multi-mode transport, because it relies on the carrier's The DES (Delivered Ex-Ship) is added with the named port of
insurance. The Seller is only required to purchase minimum destination at the Seller’s expense, for example DES Osaka. In
coverage. When this particular agreement is in sight, the this type of transaction, it is the Seller's responsibility to get
freight forwarders often act in consequence, as the carriers. the goods to the port of destination or to engage the forwarder
The Buyer's insurance is effectual when the goods are turned to the move cargo to the port of the destination unclear. Any
over to the Forwarder. destination charges that occur after the ship is docked are the
Buyer's responsibility.
The term of CIP covers the responsibilities of Seller from
Checkpoint – 1 to the Checkpoint – 10, and the Buyer has In this term, the Seller has responsibilities from Checkpoint –
obligations from Checkpoint – 11 to Checkpoint – 12. The 1 to Checkpoint – 9, and the Buyer has responsibilities from
Buyer has responsibilities for customs, duties and taxes and all Checkpoint – 10 to Checkpoint – 12.
the delivery charges at the final destination.

5. D. III. DEQ (Delivered Ex-Quay) associated with them to either Seller or the Buyer:
The DEQ (Delivered Ex-Quay) is added with the named port (i) Cash in Advance (No Risk to Seller)
of destination at the Seller’s expense, for example DEQ (ii) Letter of Credit (L/C)
Bangkok. In this type of transaction, the Buyer is responsible (iii) Drafts
for duties and charges, and the Seller is responsible for (iv) Open Account (No Risk to Buyer)
delivering the goods to the quay (dock), wharf (landing stage) Whenever International Terms of Payment are established, it
or port of destination. In a reversal of DES practice, the Buyer is necessary to consult the personal financial advisor or the
has to arrange for customs clearance also. banker and shipper to determine and analyze the best, suitable
option with benefits.
In this transaction, the Seller has responsibilities from
Checkpoint – 1 to Checkpoint – 10, and the Buyer has A. Cash in Advance
obligations from Checkpoint – 11 to Checkpoint – 12.
The Buyer pays the cash before the shipment is made, and
D. IV. DDU (Delivered Duty Unpaid) goods are available to the Buyer after the payment. In this
mode of payment, there is no risk associated to the Seller, but
The DDU (Delivered Duty Unpaid) is added with the named complete set of risks associated with the Buyer, because he
point of destination, often the project site or the Buyer’s relies on the Seller that the goods are shipped as exactly
premises, at the Seller’s expense, for example DDU expected, ordered and quoted.
Vancouver. In this INCOTERM, the Seller is responsible for
most of the expenses, which include the cargo insurance, B. Letter of Credit (L/C)
import customs clearance, and payment of customs duties and
taxes at the buyer's end. The seller may opt not to insure the Letters of Credit require total accuracy in conforming to
goods at his own risks. terms, conditions, and documentation. There is a Confirmed
and Unconfirmed Irrevocable Credit, types of L/C. In the
In this term, the Seller has responsibilities from Checkpoint – Confirmed Irrevocable Credit, the payment is made after the
1 to Checkpoint – 10 and also for Checkpoint – 12: Delivery shipment and the documents are then presented to the bank.
Charges to Final Destination. The Buyer has only the The Seller must take serious note that the Commercial Invoice
responsibility for Checkpoint – 11: Customs, Duties and must match the L/C exactly; the dates must be carefully
Taxes Abroad. headed and, as it is mentioned in legal language, the "Stale"
documents are intolerable for collection. The Confirmed
D. V. DDP (Delivered Duty Paid) Irrevocable Credit provides the seller a double assurance of
payments, and he also depends on the terms of the letter of
The DDP (Delivery Duty Paid) is added with the named point credit. This type assures the Buyer that the shipment is made,
of destination, which is again the project site or Buyer’s but he relies on exporter to ship goods as described in
premises, for example DDP Bujumbura. The DDP terms tend documents. The Decision Terms can be negotiated and
to be used in intermodal or courier-type shipments. The Seller acknowledged prior to making an L/C agreement, mitigating
is responsible for dealing with all the tasks involved in moving the Buyer's degree of risk. In the case of Unconfirmed
goods from the manufacturing plant to the Buyer’s door. It is Irrevocable Credit, the Seller has a single bank assurance of
the Seller's responsibility to insure the goods and absorb all payment and remains dependent on overseas bank. It is
costs and risks including the payment of duty and fees. recommended that the Seller should contact his banker to
resolve whether the issuing bank has adequate assets, as much
In this term of transaction, the Seller has all the enough to cover the amount.
responsibilities from Checkpoint – 1 to Checkpoint – 12.
C. Drafts
III. INTERNATIONAL TERMS OF PAYMENT
A draft may perhaps be written with practically any term or
There are four basic International Terms of Payment, based on condition agreeable to both the parties involved in
the methods of payment, the time of payment and the risks merchandise. When determining the draft’s terms and
conditions, it is necessary for both the parties to consult with

6. their banker and freight forwarder to agree on the most In the case of dispute and conflict between the parties, the
advantageous means of doing trade in a specified country. A conventional courts always consider Sales Contract initially, if
draft can be a collection tool used to barter possession and title there is any available, and after that they consider the Course
to merchandise for payment. Seller is fundamentally drawing of Performance, the Course of Dealing and then the Industry
a check against the bank account of the Buyer. And it is Standards applicable. Some additional factors are also
necessary that the Buyer's bank must have a pre-approval, or generally considered that either which person has the
must seek approval of the Buyer prior to honoring the check. possession, whether the payment has been made or not and
There are two kinds of drafts; Sight Drafts and Time Drafts. In which INCOTERMS, among the set, have been utilized for
Sight Drafts, the payment is made to the Seller once the draft trade. It is clear that INCOTERMS are not the contract and are
is presented to Buyer, and the Buyer receives his goods once not the legal definition and will never, on their own, define the
he pays at the bank. For the Seller, if the draft is not intent of the parties. They neither define the contractual rights,
privileged, then the goods must be returned or resold and the nor the liabilities and/or obligations between the parties.
storage, handling, and arrival freight expenses may also be
acquired. The Time Drafts are characterized so as that the V. CONCLUSION
payment is made to the Seller once the draft reaches its
The major, and the only, purpose of INCOTERMS is to
maturity.
produce an internationally standardized set of regulations
governing the understanding of the most commonly used
D. Open Account
contractual terms in overseas trade agreements and sales
contracts of movable, tangible goods only. INCOTERMS do
An open-account is usually agreed upon by an Invoice, by the
not specify the transport details regarding the transfer and
Seller and the Buyer, and the shipment and goods are received
delivery of the products, and most importantly, INCOTERMS
by the Buyer before payment. This payment method can put
are not liable to protect a party from his own risk of loss.
the Seller in too deep risks as he has to completely rely on the
Buyer to pay the account as per agreement. All terms the REFRENCES
general of payment, including the extra-charges and terms
should be mutually understood and agreed upon prior to an [1]. Roth, William V. Jr. and Roth, William V. III,
open-account initiation. It is important that the Seller must “INCOTERMS: Facilitating Trade in the Asian
measure and confirm not only the Buyer's credit reliability but Pacific”, 1997, Journal of International Economic Law,
also the country's acclaim as well. University of Pennsylvania, Vol. – 8, No. – 3
IV. DIFFERENCE OF THE CONTRACT AND [2]. Ramberg, Jan, “CISG and INCOTERMS 2000 in
THE INCOTERMS Connection with International Commercial
Transactions”, 2008, Sharing International Commercial
The difference between the INCOTERMS and a contract is of Law across National Boundaries, Simmons & Hills
high significance, as many may confuse these terms to be Publishing (2008), 394-403
some sort of a contract. INCOTERMS are only a means of
communication and a unit of conciliation between the two [3]. UNDP Practice Guide, “Shipping and INCOTERMS”,
parties involved in the exchange, it is not a contract. To be 2008, UNDP Practice Series, United Nations
even clearer, these terms do not compose a contract between Development Program (www.undp.org/procurement)
the Buyer and the Seller. Even if there is a condition that the
[4]. Export Department, “International Commercial Terms
two parties have no contractual conformity between them,
(INCOTERMS)”, Export 911 (www.export911.com)
they can still jointly consent on INCOTERMS and these terms
do not ascertain a legal binding between the two as a complete [5]. IBT Guide, “INCOTERMS 2000 – Chart of
contract. Instead, the two parties have to set up a separate Responsibility”, IBT Guide to INCOTERMS 2000,
contract for the sale-purchase transaction between the two, (www.i-b-t.net/incoterms)
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based upon this completely separate contract, are personified [6]. SKYMART, “INCOTERMS 2010”, SKYMART
in INCOTERMS, forming the legal binding now. WORLDWIDE (www.skymartworldwide.com)