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Incoterms are the internationally accepted commercial terms that define the respective roles of the buyer and the seller through the arrangement of transportation and other such responsibilities. They clarify when the ownership of the merchandise takes place, and they are used in conjunction with a sales agreement or other such method of sales transactions. They are set by the International Chamber of Commerce (ICC). They are a set simple set of three letter codes that represent the ways that international shipments can be organized. Incoterms allow sellers and buyers from different cultures and even legal systems to decide at what point the ownership and paying for freight, insurance and customs costs transfer from one to the other.

The Incoterms for 2000 came into effect on January 1, 2000. They made significant revision to the last ones, in order to better reflect changing transportation technologies and the increased use of electronic communications. Incoterms are grouped into 4 categories: E, F, C, and D terms.

The 'E' terms are where the seller makes the goods available to the buyer only at the seller's own premises. The 'F' terms are where the seller is called to deliver the goods to a carrier appointed by the buyer. 'C' terms are there the seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional costs after the dispatch. 'D' terms are where the seller has to bear all costs and risks to bring the goods to the destination determined by the buyer.

Following are several examples of some of the Incoterms. There is the EXW, or the ex-works, that apply only at the point of origin. In this agreement, the seller places the goods at the disposal of the buyer at the specified place on the date, or within the fixed period. There is the FCA, or free carrier, that replaces a variety of FOB terms for all modes of transportation, except vessel. It applies only at a designated inland shipping point. The seller is responsible for loading goods into the means of transportation and the buyer is responsible for all subsequent expenses.

Some of the 'F' terms are FOB (free on board), which applies only to vessel shipments. In such terms, the seller quotes a price covering all expenses up to, and including, delivery of goods on an overseas vessel provided by or for the buyer. FAS is 'Free alongside ship' means that the exporter quotes a price for the goods, including charges for delivery of the goods, alongside a vessel in the port.

Under the 'cost and freight (CFR), the seller quotes a price for the goods, including the cost of transportation to the named port of debarkment, and cost of insurance and insurer choice are left to the buyer's discretion. CIF (cost, insurance, and freight) terms is when the seller quotes a price that includes insurance, all transportation, and miscellaneous charges to the pojnt of debarkation from the vessel.

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