What are the most commonly used trade terms?
Incoterms is an abbreviation for International Commercial Terms. This is an international rule for the interpretation of the most commonly used trade terms in international trade prepared by ICC (International Chamber of Commerce) which is based in Paris. The purpose of Incoterms is to avoid disputes between trading parties arising from different interpretation of such trade terms in different countries.
Today, most of the business of international trade in the world are conducted using Incoterms as a general business custom. In order to avoid misunderstanding and confusion between a seller and a buyer, it is advisable for the exporter to add to the contract or correspondence, which constitutes the agreement between them, a clause to the effect that interpretation of trade terms are based on Incoterms.

Most commonly, they stipulate the wording in the general terms and conditions of the contract. They put such phrases like "Trade terms such as FOB, CIF and any other terms which may be used in this contract shall have the meanings defined and interpreted by Incoterms 1990, ICC, as amended, unless otherwise specifically provided in this contract". There are 13 Incoterms as follows:-

For a precise understanding of Incoterms, the exporter should keep at hand a copy of the "Incoterms 1990" published by ICC PUBLISHING S.A. Among the Incoterms, the most frequently used Trade Terms are FOB, CFR (former C&F) and CIF. According to the "Incoterms 1990", the summarised definitions for these terms are as follows.

What is FOB (Free on Board)?
"Free on Board" means that the seller has fulfilled his 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 of or damage to the goods from that point. The FOB terms requires the seller to clear the goods for export. This term can only be used for sea or inland waterway transport. When the ship's rail serves no practical purpose, such as in the case of roll-on/roll-off or container traffic, the FCA term is more appropriate to use.

What is CFR (Cost and Freight)?
"Cost and Freight" means that the seller must pay 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 incurred 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. This term can only be used for sea and inland waterway transport. When the ship's rail serves no practical purpose such as in the case of roll-on/roll-off or container traffic, the "Carriage Paid To" (CPT) term is more appropriate to use.

What is CIF (Cost, Insurance and Freight)?
"Cost, Insurance and Freight" means that the seller has the same obligations as under CFR but with the addition that he 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 buyer should note that under the CIF term the seller is only required to obtain insurance on minimum coverage. The CIF term requires the seller to clear the goods for export.

This term can only be used for sea and inland waterway transport. When the ship's rail serves no practical purposes such as in the case of roll-on/roll-off or container traffic, the "Carriage and Insurance Paid" (CIP) term is more appropriate to use.

Note: The interpretations of Incoterms are quoted from Incoterms 1990, ICC Publication No 460 - ISBN 92.842.0087.3 published in its official English version by the International Chamber of Commerce, Paris, with Copyright 1990 - International Chamber of Commerce (ICC). This is available from ICC Publishing S.A., 38 Cours Albert, 75008 Paris, France.