The Incoterms® Rules – International Commercial Terms

The Incoterms® rules are an internationally recognized standard and are used worldwide in international and domestic contracts for the sale of goods. First published in 1936, Incoterms® rules provide internationally accepted definitions and rules of interpretation for most common commercial terms.

The rules have been developed and maintained by experts and practitioners brought together by International Chamber of Commerce (ICC) and have become the standard in international business rules setting. Launched in mid-September 2010, Incoterms® 2010 came into effect on 1 January 2011. They help traders avoid costly misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers. Incoterms® rules are recognized by UNCITRAL as the global standard for the interpretation of the most common terms in foreign trade.

Please note that all contracts made under INCOTERMS® 2000 remain valid even after 2011. Moreover, although we recommend using Incoterms® 2010 after 2011, parties to a contract for the sale of goods can agree to choose any version of the Incoterms rules after 2011. It is important however to clearly specify the chosen version INCOTERMS® 2010, INCOTERMS® 2000 or any earlier version.

The Incoterms® rules have become an essential part of the daily language of trade. They have been incorporated in contracts for the sale of goods worldwide and provide rules and guidance to importers, exporters, lawyers, transporters, insurers and students of international trade.

Below are short descriptions of the 11 rules from the Incoterms® 2010 edition. These should be read in the context of the full official text of the rules which can be obtained from the ICC BusinessBookstore.

More information available at http://www.iccwbo.org/copyright-and-trademarks/

Incoterms are used in contracts in a 3-letter format followed by the place specified in the contract (e.g.the port or where the goods are to be picked up).

There are different terms for sea and inland waterways (e.g. rivers and canals) compared to all other modes of transport.

For more detail, including terms that were in use before 1 January 2011, please visit the  International Chamber of Commerce (ICC) website. 

There are also example contracts and clauses available from the ICC.

VAT isn’t covered by Incoterms - you need to specify who pays the VAT on both imports and exports.

 

Rules for Any Mode or Modes of Transport

Below are short descriptions of the 11 rules from the Incoterms® 2010 edition. Rules for any Mode or Modes of Transport

Ex Works (EXW)

“Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e., works, factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable. The buyer is responsible for all other risks, transportation costs, taxes and duties from that point onwards. This term is commonly used when quoting a price

Example: Goods are being picked up by the buyer from the seller’s premises in Birmingham. The term used in the contract is ‘EXW Birmingham’.

 

Free Carrier (FCA)

“Free Carrier” means that the seller delivers the goods, cleared for export, to the carrier or another person nominated by the buyer at the seller’s premises or another specified named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point. The buyer is then responsible for getting transported to the specified place of final delivery. This term is commonly used for containers travelling by more than one mode of transport.

 

Carriage Paid To (CPT)

“Carriage Paid To” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination i.e. the seller pays to transport the goods to the specified destination. Responsibility for the goods transfers to the buyer when the seller passes them to the first carrier.

 

Carriage and Insurance Paid To (CIP)

“Carriage and Insurance Paid to” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such pace is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”

Thus the seller pays for insurance as well as transport to the specified destination. Responsibility for the goods transfers to the buyer when the seller passes them to the first carrier.

CIP (‘Carriage and Insurance Paid’) is commonly used for goods being transported by container by more than one mode of transport. If transporting only by sea, CIF is often used (see below).

 

Delivered at Terminal (DAT)

“Delivered at Terminal” means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes a place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.

The seller pays for transport to a specified terminal at the agreed destination. The buyer is responsible for the cost of importing the goods. The buyer takes responsibility once the goods are unloaded at the terminal.

 

Delivered at Place (DAP)

“Delivered at Place” means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.

The seller pays for transport to the specified destination, but the buyer pays the cost of importing the goods. The seller takes responsibility for the goods until they’re ready to be unloaded by the buyer.

 

Delivered Duty Paid (DDP)

“Delivered Duty Paid” means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.

The seller is responsible for delivering the goods to the named destination in the buyer’s country, including all costs involved.


Rules for Sea and Inland Waterway Transport

Free Alongside Ship (FAS)

“Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.

The seller puts the goods alongside the ship at the specified port they’re going to be shipped from. The seller must get the goods ready for export, but the buyer is responsible for the cost and risk involved in loading them.

This term is commonly used for heavy-lift or bulk cargo (e.g. generators, boats), but not for goods transported in containers by more than one mode of transport (FCA is usually used for this).

 

Free On Board (FOB)

“Free On Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.

The seller must get the goods ready for export and load the mon to the specified ship.The buyer and seller share the costs and risks when the goods are on board. This term is not used for goods transported in containers by more than one mode of transport (FCA is usually used for this).

 

Cost and Freight (CFR)

“Cost and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

The seller must pay the costs of bringing the goods to the specified port.The buyer is responsible for risks when the goods are loaded onto the ship.

 

Cost, Insurance and Freight (CIF)

“Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

‘The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”

The seller must pay the costs of bringing the goods to the specified port.They also pay for insurance.The buyer is responsible for risks when the goods are loaded onto the ship.

 

Source: http://www.iccwbo.org/products-and-services/trade-facilitation/incoterms-2010/the-incoterms-rules/

Source: http://www.iccwbo.org/WorkArea/DownloadAsset.aspx?id=2147497569

Graphics Source: One Integrated Logistic Limited http://www.one-ill.com/downloads/incoterms%202015.pdf

 

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