A study on price elements in eleven terms in incoterms 2010 nghiên cứu về các yếu tố giá cả được sử dụng trong 11 điều kiện của các điều khoản thương mại quốc tế 2010

VIETNAM NATIONAL UNIVERSITY, HANOI
University of Languages and International Studies
FACULTY OF ENGLISH LANGUAGE TEACHER EDUCATION

GRADUATION PAPER

A STUDY ON PRICE ELEMENTS
IN ELEVEN TERMS IN INCOTERMS 2010

Supervisor: Assoc. Prof. Nguyen Xuan Thom
Student: Nguyen Quynh Trang
Course: 2010

Hanoi, 5/2014


ĐẠI HỌC QUỐC GIA HÀ NỘI
Đại học Ngoại Ngữ
KHOA SƯ PHẠM TIẾNG ANH

KHÓA LUẬN TỐT NGHIỆP

NGHIÊN CỨU VỀ CÁC YẾU TỐ GIÁ CẢ ĐƯỢC SỬ
DỤNG TRONG 11 ĐIỀU KIỆN CỦA “CÁC ĐIỀU
KHOẢN THƯƠNG MẠI QUỐC TẾ 2010”

Giáo viên hướng dẫn: PGS.TS Nguyễn Xuân Thơm
Sinh viên: Nguyễn Quỳnh Trang
Khóa: 2010

Hà Nội, 5/2014

STATEMENT OF ACCEPTANCE
I hereby state that I: Nguyen Quynh Trang, class QH2010 F1 E16, being a
candidate for the degree of Bachelor of Arts (TEFL) accept the requirements of
the College relating to the retention and use of Bachelor’s Graduation Paper
deposited in the library.

In terms of these conditions, I agree that the origin of my paper deposited in the
library should be accessible for the purposes of study and research, in accordance
with the normal conditions established by the librarian for the care, loan or
reproduction of the paper.

Signature
Nguyen Quynh Trang
May 5 th, 2014


ACKNOWLEDGEMENTS
First and foremost, I would like to express my sincere thanks to respectable
lecturers of Faculty of English Language Teacher Education as well as the whole
teachers at University of Languages and International Studies – Vietnam National
University, Hanoi for their invaluable knowledge and precious lessons during my
four academic years at this university. Their enthusiasm and devotion to each
lecture has inspired and motivated me in the process of writing this paper.

Secondly, in particular, I would like to send to my supervisor, Associate
Professor Nguyen Xuan Thom, my deepest gratitude. With his enthusiasm and
kind-heartedness, Prof. Thom oriented, encouraged and supported me from the
initial to the final steps of completing this graduation paper.

Finally, I owe my profound gratitude to my family, relatives and friends who
have always kindly supported and helped me both in terms of physically and
mentally throughout completion of this paper.

It is the first time I have carried out a study at the level of a graduation paper.
In spite of my great efforts, the limitations and shortcomings of the paper are
unavoidable. I look forward to receiving helpful comments from the lecturers to
further improve my paper.

I sincerely thank you!

Nguyen Quynh Trang

i


ABSTRACT
The paper focused on investigating the price elements in 11 terms in
Incoterms 2010 and these price terms‟ frequency of use in international
transactions. The paper was conducted to find out the logistic costs included in
eleven price terms given by seller in international transactions. Besides, the most
favorable price terms used in seven main regions in the world and particularly in
Vietnam were also pointed out along with giving reasons for their preference to
businessmen. In order to achieve these aims, both quantitative and qualitative
methods were employed.

At the end of the paper, through data collection and analysis, the logistics
costs included in each terms as well as the most dominant price terms in
international transactions and Vietnam are pointed out clearly. Overall, the

researcher has partially succeeded in providing readers with both useful
knowledge

about

economic terminology and practical information about

international business. However, there still exits some limitations which leave
room for improvement of the study. Finally, the researcher also offers some
suggestions for further studies in the future.

ii


TABLE OF CONTENTS
TABLE OF CONTENT

PAGE

Acknowledgements

i

Abstract

ii

List of tables and charts

vii

CHAPTER 1: INTRODUCTION
1.1 Statement of the problem and the rationale for the study

1

1.2 Aims and objectives of the study

2

1.3 Significance of the study

3

1.4 Scope of the study

4

1.5 Organization of the study

5

CHAPTER 2: LITERATURE REVIEW
2.1 Introduction of terminology

6

2.1.1 Definition of terminology

6

2.1.2 Characteristics of terminology

6

2.1.2.1 Precision

6

2.1.2.2 Emotional neutrality

7

2.1.2.3 Systematism

7

2.1.2.4 Internationalism

7

2.1.2.5 Popularity

7

2.1.3 The creation of terminology

8

2.2 Explanation of important terms

8

2.2.1 Definition of price term

8

2.2.2 Contract for international sale of goods

8

2.3 An overview of INCOTERMS

9
iii


2.4 An overview of INCOTERMS 2010

10

2.4.1 The presentation and classification of 11 t terms

10

2.4.2 Brief explanation of 11 terms

12

2.4.2.1 EXW – Ex works

12

2.4.2.2 FCA – Free Carrier (named place)

12

2.4.2.3 FAS – Free Alongside Ship (named port of shipment)

12

2.4.2.4 FOB – Free On Board (named port of shipment)

13

2.4.2.5 CFR – Cost & Freight (named port of destination)

13

2.4.2.6 CIF – Cost, Insurance & Freight

13

(named port of destination)
2.4.2.7 CPT – Carriage Paid To (named port of destination)

14

2.4.2.8 CIP – Carriage & Insurance Paid To

14

(named place of destination)
2.4.2.9 DAT – Delivered At Terminal

14

(named terminal of destination)
2.4.2.10 DAP – Delivered At Place

14

(named place of destination)
2.4.2.11 DDP – Delivered Duty Paid

14

(named port of destination)
2.5 Fundamental principle to calculate price following 11 terms

15

CHAPTER 3: METHODOLOG Y

17

CHAPTER 4: RESULTS AND DISCUSSION
4.1 Findings of the study

19

4.1.1The component parts of price element in 11 terms
in INCOTERMS 2010
iv

19


4.1.1.1

EXW price

19

4.1.1.2

FCA price

19

4.1.1.3

FAS price

20

4.1.1.4

FOB price

21

4.1.1.5

CFR price

21

4.1.1.6

CIF price

22

4.1.1.7

CPT price

23

4.1.1.8

CIP price

23

4.1.1.9

DAT price

23

4.1.1.10

DAP price

24

4.1.1.11

DDP price

25

4.1.2 The frequency of 11 price terms in practical use

25

4.1.2.1 The most commonly-used price terms in international

26

freight by region
4.12.1.1 In China/ Hong Kong

26

4.1.2.1.2 In other Asia (non-China)

27

4.1.2.1.3 In Pacific Rim

27

4.1.2.1.4 In Western Europe

28

4.1.2.1.5 In Eastern Europe

29

4.1.2.1.6 In Africa/ Middle East

30

4.1.2.1.7 In Central/ South America

31

4.1.2.2 The most commonly-used price terms in Vietnam

32

4.2.2.1 In export

33

4.2.2.2 In import

33

4.2 Discussions of the findings

36

4.2.1 Explanation for some price terms‟ high frequency
of use in international freight
v

36


4.2.2. Vietnam‟s advantages and disadvantages when using

38

these prices

CHAPTER 5: CONCLUSION
5.1 Major findings and contribution of the research

40

5.2 Limitations of the study

41

5.3 Suggestions for further study

42

REFERNCES
GLOSSARY

vi


LIST OF TABLES AND CHARTS
TABLES

PAGE

Table 2.3.1.1: Presentation of the 11 terms

10

Table 2.3.1.2: Classification of Incoterms 2010 as mode of transport

11

Table 2.3.1.3: Classification of Incoterms 2010 as Olegario Llamazares

11

Table 2.5.1: The categories of costs

16

Table 4.1.2.1: The respondents‟ choices in using price terms by regions

32

Table 4.1.2.2.1 Reference to export prices of some commodities

33

at the 3 rd week April 2012
Table 4.1.2.2.2 Reference to export prices of cashew nut

34

in some markets on June 7 th 2011
Table 4.1.2.2.1 Reference to import prices of some commodities

35

at the 3 rd week April 2012

CHARTS
Chart 4.1.2.1.1: The percentage of respondents „choices in using

27

price terms in China/ Hong Kong
Chart 4.1.2.1.2: The percentage of respondents „choices in using

27

price terms in Other Asia
Chart 4.1.2.1.3: The percentage of respondents „choices in using

28

price terms in Pacific Rim
Chart 4.1.2.1.4: The percentage of respondents „choices in using

29

price terms in Western Europe
Chart 4.1.2.1.5: The percentage of respondents „choices in using
price terms in Eastern Europe
vii

30


Chart 4.1.2.1.6: The percentage of respondents „choices in using

30

price terms in Africa/Middle East
Chart 4.1.2.1.7: The percentage of respondents „choices in using
price terms in Central/ South America

viii

31

CHAPTER 1: INTRODUCTION
In this part, the statement of the problem, rationale for the study, aims and objectives
of the study together with significance, scope, and organization of the study are
demonstrated.

1.1

Statement of the problem and rationale for the study
In the present context, the trend of globalization and regionalization has give n

business broader access to almost markets in the world. Vietnam, in a position of a
developing country with the passionate desire to enter the world‟s economy, has made
obvious advance in international trade with countries inside and outside region. The
international trade brings about many positive results for Vietnam such as broader
consumer market, larger quantities and greater variety of goods sold. However, the
more the volume and complexity of international businesses increase, the more the
misunderstandings between parties happen.
With the aim of limiting disagreement situations to a minimum, in 1936, the
International Chamber of Commerce first created International Commercial Terms or
INCOTERMS. Incoterms are uniform, internationally recognized and most commonly
used trade terms, which facilitate the conduct of international trade through dealing
with the

relation between buyers

and sellers. Hence, the confusion and

misunderstanding in using different interpretations of such terms in different countries
can be avoided or limited.

During the courses of International Commercial Transactions and Commercial
Correspondence at University of Languages and International Studies - Vietnam
National University, the researcher has found out that students often encounter
difficulties in distinguishing and interpreting price terms drafted by INCOTERMS
which is written in the contract of sale. The reason for this phenomenon can be
1


explained by the lack of specialized knowledge of both international language and
economics. Also, being aware of the usefulness of profoundly understanding price
terms used in international trade practices, the researcher has been motived to choose “
A study on price element in 11 terms in INCOTERMS 2010” as the topic for her
graduation paper.
As a double-degree student, it is very fortunate for researcher to have
fundamental background knowledge in the field of economics in general and foreign
trade in particular, and to access to economic terminology in English at the same time.
The researcher believes that in such a convenient position, she is fully capable of
carrying out study on price element entailed in 11 terms in INCOTERMS 2010. With
this paper, the researcher hopes to shed light on issues related to price in 11 terms in
INCOTERMS, thereby helps people avoid confusion when applying these terms in
practice.
1.2

Aims and objectives of the study

As a matter of fact, whenever a seller sends a quotation to a customer in a
domestic or foreign transaction, the seller has to calculate the costs which are included
in the price, whether the insurance or freight is included in the price or not. The list of
costs borne by the seller can be very long depending on the agreement between other
parties.

This paper aims at clarifying 11 price terms prescribed in Incoterms 2010. At
first, the component parts of price in each term will be pointed out. In other words, the
paper deals with the costs borne by the seller with respective price terms, inclusive of
the cost of producing goods, EXW price in the sale of contract includes the cost of
producing goods, the cost of packaging and checking the goods. Then the researcher
will examine the frequency of using these terms in practice and give implication for
Vietnam.
Specifically, this paper focuses on answering three following questions:
1) What are the component parts of price in 11 terms in INCOTERMS 2010?
2


2) Which price term is the most commonly-used in international freight by region?
3) What are the most commonly-used price terms in Vietnam?
+ In export
+ In import
1.3

The significance of the study

Frequently, in an international transaction there is a variety of different trading
practices of which parties to a contract are often unaware. As a consequence, the
obligation to bear the costs relating to goods between buyers and sellers is often
misapprehended. These disputes due to inadequate contracts can cause damage to both
parties‟ financial situation and ruin good relationship.
In the book “INCOTERMS 2010 – the official rules for the interpretation of
trade term” drawn by international chamber of commerce, a presentation of the 1 1
terms defining the parties‟ responsibilities for the delivery of goods is given. In this
book, the interpretation of these three-letter terms has been carefully analyzed. For
example, “FOB” is the abbreviation of “free on board”, which means seller clears the

goods for export and delivers them when they are on board the vessel at the named
port of shipment.
Continuing the same research on international trade, author of “the ICC Guide
to Incoterms 2010”, Professor Jan Ramberg, analyzes in detail each of the 11
Incoterms rules in his work, especially to the extent of division of cost. Nevertheless,
when referring to a sales contract, the price element determined by the seller in
accordance with 11 terms has not been concretized explicitly. For example, if the CIF
price is used in the sales contract, which costs are included in this price or which costs
the seller has to bear. The practicability of these terms is somehow mentioned, for
instance the writer gives advice on the most suitable terms which should be used in
accordance with mode of transportation.
Being aware of the importance of using provisions of Incoterms, three authors
named Nicolas Hien, Gilbert Laporte and Jacques Roy conducted a study under the
3


title “Business Environment Factors, Incoterms Selection and Export Performance”.
The objective of this study is to identify the main factors taken into consideration
when deciding which Incoterms to use and to analyze the impact of the choices of
Incoterms on export performance. Another author, Oscar Gonzalez, also pointed out
the necessity of Incoterms in international contracts through his article named
“Incoterms and international sales contracts” written on June 11. Through these
studies, the indispensable role of Incoterms in international trade transactions has
strongly confirmed. Hence, the better understandings of price terms according to 11
Incoterms have become more necessary than ever.
Based on the available knowledge about price terms together with the
collection, synthesis and analysis of previous research materials, the researcher has
carried out the study on the price element in 11 terms in Incoterms 2010. This paper,
once finished, is expected to be a useful and worth-reading material for people who
have desire to take part in foreign trade. First, the paper provides reliable knowledge

about widely known and recognized price terms used in international sale contract
worldwide. Second, based on the analysis of collected data about the percentage of
using these 11 terms in terms of region, the paper serves as a reference on the
application of using these terms in practical use.
In short, understanding precisely the price element in interpreting these terms is
very important, not only for parties involved in international business but als o for
students having intention of participating in international trade in the future
1.4

The scope of the study

It is essential for exporters and importers to notice that although there is a
variety of contracts needed to fulfill an international sales transaction, Incoterms only
relate to the contract of sale. A series of three-letter trade terms deals with three main
problems:
+ The carriage of goods from the sellers to the buyers
+ The import and export clearance
4


+ The division of risks and costs between the parties
The scope of this topic is limited to matter relating to the price in the contract of
sale given by sellers in accordance with 11 terms in INCOTERMS 2010, respectively
EXW, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAT, DAP, DPP. In other words, in
this article, the researcher focuses on analyzing the logistics costs together with the
cost of producing goods that the sellers have to bear included in 11 price terms and the
frequency of using these terms in practice.
1.5

Organization of the study

The paper consists of five chapters as follow:
Chapter 1 “INTRODUCTION” presents the rationale, aims and objectives,
significance of the study, methodology and organization of the study
Chapter 2 “LITERATURE REVIEW” supplies theoretical backgrounds for the
paper. To be specific, terms related to the study such as “Incoterms”, 11 terms in
Incoterms would be explained and related studies would be discussed.
Chapter 3 “METHODOLOGY”
Chapter 4 “RESULTS AND DISCUSSION” analyses, synthesizes collected
data to answer research questions
Chapter 4 “CONCLUSION” summarizes the issues discussed in the study, the
limitations of the study as well as suggestions for further studies.

5


CHAPTER 2: LITERATURE REVIEW
In this section, overviews of terminology, 11 terms in INCOTERMS 2010 and the
principle to calculate price are presented.

2.1

Introduction of terminology

2.1.1

Definition of terminology

Over a long period of research and understanding, many different linguists have
introduced a variety of definitions of terminology. As it is defined in the Longman

dictionary, terminology is “the technical words or expressions that are used in a
particular subject” or in the Oxford dictionary, terminology is denoted as “the body of
terms used with a particular technical application in a subject of study, theory,
profession.”
Carrying out research in the same field on terminology are a lot of famous
Vietnamese linguists. That would be an omission if we do not mention to Nguyen Van
Tu. In his work, he claims that “terminology is a word or combination of words that is
used in science, technology politics, art… and it has a specific meaning, denotes
precise concepts and names of the above-mentioned scientific areas”. In addition,
according to Nguyen Thien Giap (1981), “terminology is a section of special lexis of a
language. It consists of fixed words and groups of words which are accurate names of
concepts and subjects belonging to different specialized fields of human beings”.
From these definitions, we can understand that terminologies are specific linguistic
units in relation to specialized field in which it is used.
2.1.2

Characteristics of terminology

According to Gutiérrez Rodilla (1998) the features of terminology are
precision,

emotional

neutrality

and

stability.

Under

consideration, terminology should have the following qualities.
6

more

comprehensive


2.1.2.1

Precision

Precision is one of the most important characteristic of a terminology. If a term
is precise, its communicative dimension is unchanging or its meaning does not depend
on the context nor the sender of the message nor any other factor of a communicative
event. According to Gutiérrez Rodilla (1998), terms have to submit three conditions to
be really precise:
-

Its meaning has to be previously delimited meaning

-

This meaning has to be monosemic and there has not to be any synonym.

-

The relation established among the terms of a system has to be the same as the
one among the concepts.

2.1.2.2

Emotional neutrality

The second criterion of terminology is emotional neutrality. The term has to be
free of affective, personal or subjective components. These factors affect to the
conceptual content of the transmitted information, which modifies the message and
makes communication more difficult. In specialized fields the emotional interference
is categorically rejected.
2.1.2.3

Systematism

Another criterion of a terminology is systematism. According to Hoang Thi
Bay (2005), “each term has its own position in the system of concepts and belongs to a
terminological system. Each term requires its meaning in the relationship with other
terms in its system. Once separated from its system, its meaning is vague”.
2.1.2.4

Internationalism

Together with the development trend of the world and the increasingly powerful
globalization, terms are also internationalized to meet the increasing usage. Especially in
business and commerce, it appears a variety of internationalized terms such as acronyms in
economic terminology. Several instances of these acronyms are GNP (Gross National
Product), UNESCO (United Nations Educational, Scientific and Cultural Organization),
CIF (cost, insurance, freight). etc
7

2.1.2.5

Popularity

Popularity is one of terminology‟s characteristics. Because terminologies play a
vital role in promoting the development of mankind, it should be comprehensible to all
people in its way of reading, writing, speaking and memorizing.
2.1.3

The creation of terminology

Terminology can be more or less complex lexical units that are generated
following several processes:
-

The extension of the meaning of a word in the standard language (for instance,
share in financial terminology is a unit of ownership interest in a corporation or
financial asset)

-

Generation of a phrase that functions as a whole with one specialized meaning
(superconducting magnet).

-

Symbolic expressions, as chemical element symbols (Fe) or chemical and
mathematical formulas (H2O).

-

Abbreviations (PVC) and acronyms (FOB from Free On Board).

-

Names of post (Prime Minister), organizations or administrations (United State,
Prime Minister).

2.2

Explanation of important terms

2.2.1

Definition of “price term”

Price is “a value that will purchase a finite quantity, weight or other measures
of a good or service […]. It may be fixed by a contract, left to be determined by an
agreed upon formula at a future date, or discovered or negotiated during the course of
dealings between the parties involved. In commerce, price is determined by what a
buyer is willing to pay; a seller is willing to accept (Business dictionary)
In domestic and international transaction, the seller often uses some recognized
trade terms as a guide to calculate the price given in the sale of contract or sale
agreement. The price given in relation to these particular trade terms is called price
term. FOB price, CIF price, etc. are some examples of price term.
8


2.2.2

Contract for the International Sale of goods

- Definition of the sales contract
As a matter of terminology, “Contract for the international sales of goods” can be
expressed in different ways in Vietnamese such as “Hợp đồng mua bán ngoại thương”,
“Hợp đồng mua bán quốc tế”, “Hợp đồng xuất nhập khẩu”, “Hợp đồng thương mại
quốc tế”. Whether being referred to by many ways, they still have the same contents.
In general, International sale of goods is an agreement between 2 entities - buyer and
seller (or exporter and importer) who have business headquarters in different countries.
Accordingly, the seller has the obligation to transfer ownership of goods and receive
money for the purchase, the buyer also has the obligation to receive goods and pay for
the purchase.
- The application of price terms in the sale contract
In general, an international sale of goods consists of two groups of terms and
conditions known as indispensable and fundamental terms and conditions and other
ones. In the former group there are 6 terms and conditions, respectively commodity,
quantity, quality and specification, prices, shipment, payment. Price terms define
responsibilities and costs which buyer and the seller must bear in delivery as freight,
handling, insurance fees, storage fees, customs procedures, etc so in the contract of
sale, the price is always recorded with an Incoterm. As a result, price terms such as
FOB price, CIF price, etc are more and more widely used.
2.3

An overview of INCOTERMS
Incoterms, a contraction of International Commerce Terms Incoterms, is a

group of international rules proposed by Chamber of Commerce (ICC) which is
recognized and widely used worldwide in international and domestic contracts for the
sale of goods.

The first version of Incoterms was launched in 1936. However, to meet the
changing needs of the global trade environment and reflect the business practice

9


among enterprises, the International Chamber of Commerce has introduced amended
versions of Incoterms 1953, 1967, 1976, 1980, 1990, 2000 and most recently 2010
In general, Incoterms deals with the following issues:
(1) The carriage of goods from the sellers to the buyers
(2) The import and export clearance
(3) The division of risks and costs between the parties
The updated Incoterms 2010 became effective from 1/1/201. The number of
terms was reduced from 13 to 11. The 2010 version eliminated four terms: DES
(Delivered at Frontier), DEQ (Delivered Ex Quay), DAF (Delivered At Frontier) and
DDU (Delivered Duty Unpaid) and created two new terms: DAT and DAP. DAT
replaces DES, DEQ, DAF and DAP replaces DDU.
2.4

An overview of INCOTERMS 2010

2.4.1

The presentation of 11 terms

The list of Incoterms, last revised in 2010, currently includes 11 terms (see
Table 2.3.1.1)
Table 2.3.1.1: Presentation of the 11 terms
Acronym

Complete name

Acronym

Complete name

EXW

Ex work

CIF

Cost, Insurance & Freight

FAS

Free Alongside Ship

CIP

Carriage & Insurance Paid To

FCA

Free Carrier

DAT

Delivered At Terminal

FOB

Free On Board

DAP

Delivered At Place

CFR

Cost & Freight

DDP

Delivered Duty Paid

CPT

Carriage Paid To

The 11 terms are generally divided into 4 groups: group E (EXW), group F
(FCA, FAS, and FOB), group C (CPT, CFR, CIP, and CIF) and group D (DAT, DAP,
DDP). The first group is called departure Incoterms, the second group is called main
10


carriage unpaid Incoterms, the third group is called main carriage Incoterms and the
Incoterms in last group are called arrival Incoterms.
However, the terms in Incoterms 2010 are also divided into 2 groups. The terms
for "any mode of transport" can be used in case more than one mode of transport is

employed to transport the goods. The terms for "sea and inland waterway transport"
are specific to contracts in which both the point of delivery and the destination of the
goods are ports. Below is table 2.3.1.2 which shows the classification of 11 terms.
Table 2.3.1.2: Classification of Incoterms 2010 as mode of transport
For any mode of transport

For sea and inland waterway transport

EXW, FCA, CPT, CIP, DAT,

FAS, FOB, CFR, CIF

Moreover, Prof Olegario Llamazares (2012) classifies 11 Incoterms according
to three criteria, namely mode of transport used, payment for the main transport and
transfer of risks in transporting the goods. The classification is provided in Table
2.3.1.3

Table 2.31.3: Classification of Incoterms 2010 as Olegario Llamazares
Acronyms

Mode of transport

Payment

of

main Transfer of risks in

transport

transport

EXW

Any mode

Buyer

Origin

FCA

Any mode

Buyer

Origin

CPT

Any mode

Seller

Origin

CIP

Any mode

Seller

Origin

DAT

Any mode

Seller

Destination

DAP

Any mode

Seller

Destination

DPP

Any mode

Seller

Destination

11

FAS

Sea

Buyer

Origin

FOB

Sea

Buyer

Origin

CFR

Sea

Seller

Origin

CIF

Sea

Seller

Origin

2.4.2

Brief explanation of 11 terms

2.4.2.1

EXW – Ex Works

“A trade term requiring the seller to deliver goods at his or her own place of
business. All other transportation costs and risks are assumed by the buyer” (Financial
dictionary from Investopedia)
The seller‟s minimum obligation is referred in this term, since the seller only
has to place the goods at the disposal of the buyer (at the seller‟s premises or another
named place such as works, factory, and warehouse). The buyer has the obligation of
carrying out all tasks of export and import clearance as well as arranging carriage and
insurance.
2.4.2.2

FCA – Free Carrier (named place)

“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.” (Financial dictionary from
Investopedia)
According to this term, the seller is responsible for delivering the goods,
clearing for export to the carrier nominated by the buyer at the named place. Seller is
required to pay for carriage to the named place. The buyer has to bear all co sts and

risks from that moment.
2.4.2.3

FAS – Free Alongside Ship (named port of shipment)

“A trade term requiring the seller to deliver goods to a named port alongside a
vessel designated by the buyer. “Alongside" means that the goods are within reach of a
ship's lifting tackle. When used in trade terms, the word "free" means the seller has an
12


obligation to deliver goods to a named place for transfer to a carrier ” (Financial
dictionary from Investopedia)
According to this term, the seller is fully responsible for the goods until they are
placed alongside the vessel at the named port of shipment. The seller has obligation of
clear the goods for export. From that moment the costs and risks of loss or damage to
the goods shifts from the sellers to the buyers from that moment. This term can be
used only for sea or inland waterway transport.
2.4.2.4

FOB – Free On Board (named port of shipment)

“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.” (Financial
dictionary from Investopedia)
This term means that the seller delivers when the goods pass the ship‟s rail at
the named port of shipment. This means the buyer has to bear all costs and risks to the
goods from that point. The seller must clear the goods for export. This term can only

be used for sea transport. If the parties do not intend to deliver the goods across the
ship‟s rail, the FCA term should be used.
2.4.2.5

CFR – Cost & Freight (named port of destination)

This term means the seller delivers when the goods pass the ship‟s rail in port
of shipment. Seller must pay the costs and freight necessary to bring the goods to the
named port of destination, BUT the risks of loss or damage, as well as any additional
costs due to events occurring after the time of delivery, are transferred from seller to
buyer. Seller must clear goods for export. This term can only be used for sea
transport.
2.4.2.6

CIF – Cost, Insurance & Freight (named port of destination)

The seller delivers when the goods pass the ship‟s rail in the port of shipment.
Seller must pay the cost and freight necessary to bring goods to named port of
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destination. Risk of loss and damage are the same as CFR. Seller also has to procure
marine insurance against buyer‟s risk of loss/damage during the carriage. Seller must
clear the goods for export. This term can only be used for sea transport.
2.4.2.7

CPT – Carriage Paid To (named port of destination)

This term means that the seller delivers the goods to the carrier nominated by
him but the seller must in addition pay the cost of carriage necessary to bring the

goods to the named destination. The buyer bears all costs occurring after the goods
have been so delivered. The seller must clear the goods for export. This term may be
used irrespective of the mode of transport (including multimodal).
2.4.2.8

CIP – Carriage & Insurance Paid To (named place of destination)

This term is the same as CPT with the exception that the seller also has to
procure any mode of transportation.
2.4.2.9

DAT – Delivered At Terminal (named terminal of destination)

This term means that the seller delivers when the goods once unladed from the
arriving means of transport, are placed at the disposal of the buyer at a named terminal
at a named port or place of destination. "Terminal" includes any place, whether
covered or not, such as a quay, warehouse, container yard or road, rail or air cargo
terminal. The seller bears all risks involved in bringing the goods to and unloading
them at terminal at the named port or place of destination
2.4.2.10 DAP – Delivered At Place (named place of destination)
This term may be used regardless of the mode of transport and may also be
used where more than one mode of transport is utilized. DAP means the seller delivers
when the goods are placed at the disposal of the buyer on the arriving means of
carriage ready for unloading at the names place of destination. The seller bears all
risks involved in bring the goods to the named place.
2.4.2.11 DDP – Delivered Duty Paid (named port of destination)
This term represents maximum obligation to the seller. This term should not be
used if the seller is unable to directly or indirectly obtain the import license. This term
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