Commonly Used Shipping, Cost and Payment Terms and Conditions (TERMS)

Commonly Used Shipping, Cost and Payment Terms and Conditions (Terms)

1. CIA (Cash in Advance): Up front cash to exporters before shipment.
2. CAD (Cash Against Documents): A payment arrangement in which an exporter instructs a bank to hand over shipping and title documents to the importer when the importer fully pays the accompanying bill of exchange or draft. Also called Documents Against Payment.

Incoterms 2020

3. CFR (Cost and Freight) (... Named Port of Destination): A Term of Sale where the seller pays the costs and freight necessary to bring the goods to the named port of destination, but the risk of loss or damage of the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel, is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment. The CFR term requires the seller to clear the goods for export.
4. CIF (Cost, Insurance and Freight) (... Named Port of Destination): A Term of Sale where the seller has the same obligations as under the CFR but also has to procure marine insurance against the buyer's risk of loss or damage of the goods during the carriage. The seller contracts for insurance and pays the insurance premium. The CIF term requires the seller to clear the goods for export.
5. CIP (Carriage and Insurance Paid To) (... Named Place of Destination): A Term of Sale which means the seller has the same obligations as under CPT, but with the addition that the seller has to procure cargo insurance against the buyer's risk of loss or damage of the goods during the carriage. The seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIP term the seller is required to obtain insurance only on minimum coverage. The CIP term requires the seller to clear the goods for export.
6. Consignment Sale: The price of the purchased goods is paid as they are sold (Payments deferred until goods sold).
7. CPT (Carriage Paid To) (... Named Place of Destination): A Term of Sale which means the seller pays the freight for the carriage of the goods to the named destination. The risk of loss or damage of the goods, as well as any additional costs due to events occurring after the time the goods have been delivered to the carrier, is transferred from the seller to the buyer when the goods have been delivered into the custody of the carrier. If subsequent carriers are used for the carriage to the agreed upon destination, the risk passes when the goods have been delivered to the first carrier. The CPT term requires the seller to clear the goods for export.
8. DAF (Delivered at Frontier) (... Named Place of Destination): A Term of Sale which means the sellers fulfill their obligation to deliver when the goods have been made available, cleared for export, at the named point and placed at the frontier, but before the customs border of the adjoining country.
9. DAP (Delivered at Place) (... Named Place of Destination): Can be used for any transport mode or where there is more than one transport mode. The seller is responsible for arranging carriage and for delivering the goods, ready for unloading from the arriving conveyance, at the named place. (An important difference from Delivered at Terminal (DAT), where the seller is responsible for unloading.) Risk transfers from seller to buyer when the goods are available for unloading; so unloading is at the buyer’s risk. The buyer is responsible for import clearance and any applicable local taxes or import duties. This rule can often be used to replace the Incoterms 2020 rules Delivered at Frontier (DAF), Delivered Ex Ship (DES) and Delivered Duty Unpaid (DDU).
10. DAT (Delivered at Terminal) (... Named Place of Destination): Can be used for any transport mode or where there is more than one transport mode. The seller is responsible for arranging carriage and for delivering the goods, unloaded from the arriving conveyance, at the named place of destination. Risk transfers from seller to buyer when the goods have been unloaded (an important difference from Delivered at Place (DAP), where the seller is not responsible for unloading). Terminal can be any place (a quay, container yard, warehouse or transport hub). The buyer is responsible for import clearance and any applicable local taxes or import duties. Things to watch for: The place for delivery should be specified as precisely as possible, as many ports and transport hubs are very large. A useful rule, well suited to container operations where the seller bears responsibility for the main carriage.
11. DDP (Delivered Duty Paid) (... Named Port of Destination): "DDP" means that the seller fulfills his obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear the risks and costs, including duties, taxes and other charges of delivering the goods thereto, clear for importation. While the EXW term represents the minimum obligation for the seller, DDP represents the maximum.
12. DDU (Delivered Duty Unpaid) (... Named Port of Destination): A Term of Sale where the seller fulfills his obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear the costs and risks involved in bringing the goods thereto (excluding duties, taxes and other official charges payable upon importation) as well as the costs and risks of carrying out customs formalities. The buyer has to pay any additional costs and to bear any risks caused by failure to clear the goods for in time.
13. DEQ (Delivered Ex Quay, [Duty Paid]) (... Named Port of Destination): A Term of Sale which means the DDU term has been fulfilled when the goods have been available to the buyer on the quay (wharf) at the named port of destination, cleared for importation. The seller has to bear all risks and costs including duties, taxes and other charges of delivering the goods thereto.
14. DES (Delivered Ex Ship) (... Named Port of Destination): A Term of Sale where the seller fulfills his / her obligation to deliver when the goods have been made available to the buyer on board the ship, uncleared for import at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination.
15. DPU (Delivered at Place Unloaded) (formerly referred to as DAT (Delivered at Terminal)): A Term of Sale where the seller fulfills his / her obligation to deliver when the goods have been made available to the buyer at place unloaded for import at the named place of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named place of destination.
16. EXW (Ex Works) (... Named Place): A Term of Sale which means that the seller fulfills the obligation to deliver when he or she has made the goods available at his / her premises (i.e., works, factory, warehouse, etc.) to the buyer. In particular, the seller is not responsible for loading the goods in the vehicle provided by the buyer or for clearing the goods for export, unless otherwise agreed. The buyer bears all costs and risks involved in taking the goods from the seller's premises to the desired destination. This term thus represents the minimum obligation for the seller.
17. FAS (Free Alongside Ship) (... Named Port of Shipment): A Term of Sale which means the seller fulfills his obligation to deliver when the goods have been placed alongside the vessel on the quay or in lighters at the named port of shipment. This means that the buyer has to bear all costs and risks of loss or damage of the goods from that moment.
18. FCA (Free Carrier) (... Named Place): A Term of Sale which means the seller fulfills their obligation when he or she has handed over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place or point of destination. If no precise point is indicated by the buyer, the seller may choose, within the place or range stipulated, where the carrier should take the goods into their charge.
19. FOB (Free On Board) (... Named Port of Shipment): An International Term of Sale that means the seller fulfills his or her obligation to deliver when the goods have passed over the ship's rail at the named port of shipment. This means that the buyer has to bear all costs and risks of loss or damage of the goods from that point. The FOB term requires the seller to clear the goods for export.
20. Freight Cost Calculation: The freight rate on export goods is often based on W/M (Weight or Measure), that is, based on the weight or the volume of cargo (the cube or measurement of cargo). The rate uses the comparative relation between weight and volume of cargo. A cargo that is large in relation to its weight is charged according to its total cube, while a cargo that is heavy in relation to its size is charged according to its gross weight. In general, light cargo is charged based on measure, while heavy cargo based on weight. Most sea consignments are charged based on measure, while most air consignments are charged based on weight. The freight cost by weight or measure that will give the carrier the higher revenue is the rate that applies. The unit of ton being used in the freight cost calculation may differ among carriers. The exporter must verify with the carrier which unit is being used. In practice, the most frequently used is the metric ton.
21. Letter of Credit: A letter issued by a bank authorizing the bearer to draw a stated amount of money from the issuing bank, its branches or other associated banks or agencies.
22. Open Account: An unpaid credit order.
23. Telegraphic Transfer: Electronic transfers of funds through banks.

Note: Explanation of terms and conditions are for reference only.

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