QA Series No 24 - LC Part 4

 

The Banking Tutor

Question Answer Series 2025

S No 34                                                                   06-08-2025

Letters of Credit – Part 4 

76. What is full form of EXW in the context of Incoterms? 

EXW stands for Ex Works. It is also known as Ex-Works or Ex-Factory. 

77. What is indicated by EXW in the context of Incoterms? 

The incoterm Ex Works (EXW) means that the seller delivers the goods at the buyer's disposal at the place of destination, such as a factory, warehouse, or workplace. Ex-works delivery term determines the maximum obligation on the buyer (the importer) and the minimum responsibility on the seller (the exporter). 

78. What is full form of FCA in the context of Incoterms? 

FCA stands for Free Carrier. 

79. What is indicated by FCA in the context of Incoterms? 

In the Free Carrier (FCA) delivery method, the seller delivers the cargo at a point requested by the buyer. An FCA point can be, for example, a train station or a port of shipment. 

At the FCA point, the buyer (importer) is responsible for loading and arranging transportation to its destination. The seller must ensure that the goods are ready for collection at a designated place of destination on time and in good condition. 

80. What is the main difference between FOB and FCA ? 

The main difference between FCA and FOB in container shipments is that the costs incurred at the loading port belong to the buyer in the form of FCA delivery and the seller in FOB delivery. According to the Free Carrier delivery method, the seller's responsibility ends when the buyer delivers the cargo or the loaded container to the point requested in the sale contract. 

81. What is the full form of FAS in the context of Incoterms? 

FAS stans for  Free Alongside Ship. 

82. What is indicated by FAS  in the context of Incoterms? 

In the form of Free Alongside Ship (FAS) delivery, the seller is obliged to deliver the goods at the port of shipment where the ship is located to the vessel's side.  From this point onwards, the seller's obligation ends and the buyer must take care of all costs and risks associated with the transportation of the goods. 

83. What is the full form of FOB in the context of Incoterms? 

FOB stands for Free On Board. 

84. What is indicated by FOB  in the context of Incoterms? 

In the form of Free on Board (FOB) delivery, the seller, the exporter, must deliver the cargo to the port requested by the buyer, i.e., the importer, according to the ship loading date. When determining the FOB Incoterms, the selling company must anticipate the inland shipping cost and the inland shipping time if a port is requested in a different location where the seller company is based.

85. What is the full form of CFR in the context of Incoterms? 

CFR stands for Cost and Freight. 

86. What is indicated by CFR  in the context of Incoterms? 

Cost and Freight (CFR) is when the supplier assumes all the risk for the shipment until the consignee collects the cargo at its final destination. The supplier must arrange and pay for the freight costs up to the port of delivery. 

87. What is the full form of CPT in the context of Incoterms? 

CPT stands for Carriage Paid To. 

88. What is indicated by CPT  in the context of Incoterms? 

The exporting company is responsible for the overseas shipment in the form of Carriage Paid To (CPT) delivery. The seller delivers the goods to the buyer at the place of destination in the importer's country. 

89. What is the full form of CIF in the context of Incoterms? 

CIF stands for Cost Insurance Freight.

90. What is indicated by CPT  in the context of Incoterms? 

In the form of Cost Insurance Freight (CIF) delivery, the seller organizes the international shipment process by undertaking the freight and insurance costs to be delivered to the buyer at a port in the importer's country. It is commonly used for containerized and bulk cargo. 

91. What is the full form of CIF in the context of Incoterms? 

CIP stands for Carriage and Insurance Paid to . 

92. What is indicated by CIP  in the context of Incoterms? 

According to the Carriage and Insurance Paid to (CIP) mode of transport, the exporter is responsible for all processes, except import customs clearance, until the goods are delivered to the importer's country. CIP mode of transportation is widely used in road vehicle transportation, and it is also a suitable incoterm for multimodal shipments. 

93. What is the full form of DPU in the context of Incoterms? 

Delivered at Place Unloaded (DPU) 

94. What is indicated by DPU  in the context of Incoterms? 

The Delivered at Place Unloaded (DPU) mode of transport entered into force with Incoterms 2020 rules instead of the DAT transport form in Incoterms 2010. As a result, the buyer bears all risks involved in bringing the goods to and unloading them at the place of destination. 

95. What is the full form of DAP in the context of Incoterms? 

DAP stands for Delivered At Place. 

96. What is indicated by DAP  in the context of Incoterms? 

Delivered At Place (DAP) is the delivery term describing a deal where the seller is responsible for all costs and responsibilities, excluding insurance and import customs. If the DAP has been accepted, the parties must specify who will obtain insurance and add it to the contract. 

97. What is the full form of DDP in the context of Incoterms? 

DDP stands for Delivered Duty Paid. 

98. What is indicated by DDP  in the context of Incoterms? 

DDP (Delivered Duty Paid) is the only Incoterms that require the seller covers all duties and taxes at the time of delivery. Therefore, the seller must bear all the costs and risks associated with delivering the goods. At first glance, it may seem similar to CIF, but they have their differences. 

99. What are the advantages and disadvantages of using Incoterms for international trade? 

The main benefits of using Incoterms are that they provide a common language across borders, make it easy to compare prices from different suppliers, and enable you to calculate your freight charges. The disadvantages of using Incoterms are that they may not cover every possible scenario, and sellers and buyers may have different preferences for their business. 

100. Which Incoterms are used in e-commerce transactions? 

Most B2B sales contracts will be either EXW, CPT, or CIF, while most B2C sales will be CPT or CIF. However, some B2C sales may be made using DDP instead of CPT or CIF. 

101. What Incoterms are used for air freight? 

Seven Incoterms may be used for air freight: EXW, FCA, CPT, CIP, DAT, DPU, and DDP. 

102. Can Incoterms be used for domestic shipments? 

Yes. Incoterms can be used for domestic shipping as long as both parties agree to the terms and conditions of the shipment. 

103. What Incoterms rules work best with letters of credit? 

The Incoterms that are most successful with letters of credit are CIF, CIP, CFR, or CPT. With all of these rules, delivery occurs before the primary carriage. 

104. Can you add qualifications or variations to Incoterms rules? 

Yes. Parties may add qualifications or variations to the Incoterms rules as long as they are not contrary to the terms of the Incoterms. However, any such qualification or variation should be clearly indicated in writing between both parties. Without an explicit agreement, it will be assumed that the applicable Incoterm is being used without any qualifications. 

105. Can we  Still Use Incoterms 2010? 

Exporters and importers who have included "Incoterms 2010 FOB" in the sales contracts have accepted the FOB delivery terms in "Incoterms 2010".  They should be stated correctly and clearly on the relevant shipping documents for them to be effective as a contract of sale.  

Next Issue  will be shared on 8^th  August  2025.

Sekhar Pariti

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