As the author has personal opinion that INCO term 2000 is the best INCO term ever, this should have come up with the reasons why.
Should you take good observation to each category, you will find that it has already been very clearly segregated with level of responsibility towards all the expenses according to the process of work flow, from the factory to activities in the country of origin, transportation, activities in the country of destination up to taking delivery to consignee’s door. The sequences are as follows :-
- Category E mentions only cost of goods sold, nothing about all other relevant expenses elsewhere.
- Category F is about all related expenses incurred in the country of origin only.
- Category C refers to main international transportation from country of origin to country of destination.
- Category D is about activities and related expenses after the arrival of goods at country of destination.
The first letter of all terms in each category is the same which makes it simplified and easy remembering.
However, there could be the question about the term C and F (Cost and Freight) which means prices of goods is as per FOB value plus freightage up to arrival of goods at country of destination for which we may be much familiar to the abbreviation C&F or CAF or C+F or even CNF instead, which had been widely used in the past before INCO term 2000 came to effect. Those are still being used so long as it gives the common understand to all parties concern what it really stands for.
But after INCO term 2000 was officially implemented, ICC had mandated that all INCO terms must always consist of 3-English-letter code, all other characters are strictly prohibited, in order for common understanding of all parties concern worldwide. Therefore, the term : Cost and Freight is abridged to be CFR
In real practice, author experienced some countries are not using INCO term correctly as per official ICC mandate, especially countries in the Middle East region, which many of the transaction are carried out through middleman or trading agent and thus, commission payable to such trading firm will be charged by mean of percentage calculated from the price of goods. This commission could be charged to either seller or buyer as per prior agreement.
Therefore, some exporters with customer located in the countries of said region may possibly come across weird INCO terms, despite the payment method is made by L/C through conventional bankers. As the matter of fact, any banker with international trading division should have most comprehensive idea about INCO term, but still allow incorrect term to be used, and even well acceptable among buyer, seller and banker.
For example, the author once received question from one exporter that they received L/C from their Middle East customer which indicated strange or outlandish trading INCO term not found in any directory. The terms were, sometimes like, CNFC3 or CFC5 or CIFC5. Actually, those freaky terms were just altered from the corrective ones, by putting some extra letter or number, which were mutually understandable among buyer, seller and L/C opening bank intervened with such particular transaction. The exact meaning of such weird INCO terms are as follows :-
- CNFC3 is intended to mean price in CFR term suffixing with another C which stands for ‘commission’ and number 3 mean 3% to be rebated to trading firm. However, payer of such commission could be either buyer or seller subject to prior agreement but would be clearly indicated in L/C condition.
- CFC5 – surely this is not any bombing formula or elements periodic table, but it means for CFR (Cost and Freight) term, suffix with number 5 is for 5% – same procedure as per above first example.
- Another strange term – CIFC5, hope reader can guess that they would mean for CIF (Cost + Insurance + Freight) term with 5% commission.
Some may think there is no right or wrong, so far as all parties in business transaction have common understanding which lead to final purchase order and settlement is truly made.
Now, the reader could understand INCO term 2000, we will move to next version in next part, i.e. INCO term 2010 to see anything are modified from version 2000, any better, to be narrated in next part.