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Incoterms

Incoterms are a set of three-letter standard trade terms most commonly used in international

contracts for the sale of goods. They are published by the International Chamber of Commerce(ICC).

The first Incoterms were issued in 1936. The most recent version of Incoterms, Incoterms 2010,

was launched in September 2010 and became effective January 1, 2011.

What are Incoterms used for?

Incoterms provide a common set of rules to clarify responsibilities of sellers and buyers for the

delivery of goods under sales contracts. They apportion transportation costs and responsibilities

associated with the delivery of goods between buyers (importers) and sellers (exporters) and reflect

modern-day transportation practices. Incoterms significantly reduce misunderstandings amongtraders and thereby minimize trade disputes and litigation. They are also intended to reduce or

remove altogether uncertainties arising from different interpretation of the rules in different

countries.

Why were the Incoterms 2000 revised?

Incoterms 2010 are the updated version of Incoterms. Incoterms 2010 have been developed as a

result of an extensive review of current shipping practices and trends in an effort to keep up with

the rapid expansion of world trade. The key drivers for this update include: a need for improved

cargo security, changes to the Uniform Commercial Code in 2004 that resulted in a deletion ofU.S. shipment and delivery terms, and new trends in global transportation.

What are the Incoterms 2010?

The two main categories of Incoterms 2010 are now organized by modes of transport. Used in

international as well as in domestic contracts for the first time, the new groups aim to simplify the

drafting of contracts and help avoid misunderstandings by clearly stipulating the obligations of

buyers and sellers.

Group 1. Incoterms that apply to any mode of transport are:

EXW Ex Works

FCA Free Carrier

CPT Carriage Paid To

CIP Carriage and Insurance Paid To

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DAT Delivered at Terminal

DAP Delivered at Place

DDP Delivered Duty Paid

1. EXW - Ex Works

It places the minimum responsibility on the seller with greater responsibility on the buyer. In an

EX-Works transaction, goods are basically made available for pickup at the shipper/seller's factoryor warehouse and "delivery" is accomplished when the merchandise is released to the consignee's

freight forwarder. The buyer is responsible for making arrangements with their forwarder for

insurance, export clearance and handling all other paperwork.

2. FCA- Free Carrier

The seller is responsible for arranging transportation, but he is acting at the risk and the expense of

the buyer. The seller chooses and works with the freight forwarder or the carrier. "Delivery" isaccomplished at a predetermined port or destination point and the buyer is responsible for

Insurance.

3. CPT- Carriage Paid To

The seller delivers goods to the carrier at an agreed place, shifting risk to the buyer, but seller must

pay cost of carriage to the named place of destination.

In CPT transactions the shipper/seller has the same obligations found with CIF, with the addition

that the seller has to buy cargo insurance, naming the buyer as the insured while the goods are in

transit.

4. CIP - Carriage and Insurance Paid To

Seller delivers goods to the carrier at an agreed place, shifting risk to the buyer, but seller pays

carriage and insurance to the named place of destination.

This term is primarily used for multimodal transport. Because it relies on the carrier's insurance,the shipper/seller is only required to purchase minimum coverage. When this particular agreement

is in force, Freight Forwarders often act in effect, as carriers. The buyer's insurance is effective

when the goods are turned over to the Forwarder.

5. DAT - Delivered at Terminal

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This term is used for any type of shipments. The shipper/seller pays for carriage to the terminal,

except for costs related to import clearance, and assumes all risks up to the point that the goods areunloaded at the terminal.

Demurrage or detention charges may apply to seller. Seller clears goods for export, not import.

DAT replaces DEQ, DES.

6. DAP - Delivered at Place

DAP term is used for any type of shipments. The shipper/seller pays for carriage to the namedplace, except for costs related to import clearance, and assumes all risks prior to the point that the

goods are ready for unloading by the buyer.

Seller bears cost, risk and responsibility for goods until made available to buyer at named place of

destination. Seller clears goods for export, not import. DAP replaces DAF, DDU.

7. DDP - Delivered Duty Paid

Seller bears cost, risk and responsibility for cleared goods at named place of destination at buyers

disposal. Buyer is responsible for unloading. Seller is responsible for import clearance, duties and

taxes so buyer is not importer of record. It is the shipper/seller's responsibility to insure thegoods and absorb all costs and risks.

Group 2. Incoterms that apply to sea and inland waterway transport only:

FAS Free Alongside Ship

FOB Free on Board

CFRCost and Freight

CIF Cost, Insurance, and Freight

8. FAS - Free Alongside Ship

In these transactions, the buyer bears all the transportation costs and the risk of loss of goods. FAS

requires the shipper/seller to clear goods for export, which is a reversal from past practices.Companies selling on these terms will ordinarily use their freight forwarder to clear the goods for

export. "Delivery" is accomplished when the goods are turned over to the Buyers Forwarder for

insurance and transportation.

9. FOB - Free On Board

One of the most commonly used-and misused-terms, FOB means that the shipper/seller uses his

freight forwarder to move the merchandise to the port or designated point of origin. Though

frequently used to describe inland movement of cargo, FOB specifically refers to ocean or inland

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waterway transportation of goods. "Delivery" is accomplished when the shipper/seller releases the

goods to the buyer's forwarder. The buyer's responsibility for insurance and transportation beginsat the same moment.

Risk passes to buyer, including payment of all transportation and insurance costs, once delivered

on board the ship by the seller. A step further than FAS.

10.CFR - Cost and Freight

This term formerly known as CNF (C&F) defines two distinct and separate responsibilities-one isdealing with the actual cost of merchandise "C" and the other "F" refers to the freight charges to a

predetermined destination point. It is the shipper/seller's responsibility to get goods from their door

to the port of destination. "Delivery" is accomplished at this time.

Seller delivers goods and risk passes to buyer when on board the vessel. Seller arranges and payscost and freight to the named destination port.

It is the buyer's responsibility to cover insurance from the port of origin or port of shipment to

buyer's door. Given that the shipper is responsible for transportation, the shipper also chooses theforwarder.

A step further than FOB.

11.CIF - Cost, Insurance and Freight

This arrangement similar to CFR, but instead of the buyer insuring the goods for the maritime

phase of the voyage, the shipper/seller will insure the merchandise. In this arrangement, the seller

usually chooses the forwarder. "Delivery" as above, is accomplished at the port of destination.

Risk passes to buyer when delivered on board the ship. Seller arranges and pays cost, freight and

insurance to destination port. Adds insurance costs to CFR.

Incoterms Do Not

Determine ownership or transfer title to the goods, nor evoke payment terms.

Apply to service contracts, nor define contractual rights or obligations (except for delivery) or

breach of contract remedies. Protect parties from their own risk or loss, nor cover the goods before or after delivery.

Specify details of the transfer, transport, and delivery of the goods. Container loading is notconsidered packaging, and must be addressed in the sales contract.

Incoterms are not law and there is no default incoterm.

References:

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