INCOTERMS: Business Terminology

INCOTERMS: Business Terminology

INCOTERMS® is a trademark of ICC. First published in 1936, the Incoterms rules have been periodically updated. INCOTERMS® rules revised in 1957, 1967, 1976, 1980, 1990, 2000 and 2010 to accommodate changes in global trade. Currently running its 8th version published on January 1, 2011

In international trade, bit changes in wording may have a major impact on all aspects of an agreement. For business terminology to be effective, phrases must mean the same thing throughout the industry. Different practices and legal interpretations between traders around the world necessitated a common set of rules and guidelines.  

International Chamber of Commerce (ICC) introduced the first INCOTERMS® to avoid misunderstandings regarding buyers & sellers responsibility and liability for the delivery of the goods. Pursuant to the ICC, Incoterms may be applied to both domestic & international sales 

Difference between INCOTERMS® 2000 & INCOTERMS® 2010:

Instead of 13 clauses on INCOTERMS® 2000, there will only be 11 clauses on INCOTERMS® 2010

• DEQ replaced by DAT
• DAF / DES / DDU replaced by DAP

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

The Seven Rules defined by INCOTERMS® 2010 for any mode(s) of transportation:

1. EXW (Ex Works)
2. FCA (Free Carrier)
3. CPT (Carriage Paid To)
4. CIP (Carriage and Insurance Paid To)
5. DAT (Delivered at Terminal)
6. DAP (Delivered at Place)
7. DDP (Delivered Duty Paid)

The four rules defined INCOTERMS® that use for sea and inland waterway transport

1. FAS (Free Alongside Ship)
2. FOB (Free on Board)
3. CFR (Cost and Freight)
4. CIF (Cost, Insurance, and Freight)

Rules for Any Mode(s) of Transport

The seven rules defined by INCOTERMS 2010 for any mode(s) of transportation are:

1.EXW – Ex Works (named place of delivery)

• Most basic shipment arrangements place the minimum responsibility on the seller with maximum responsibility on the buyer 
• EXW stands for Seller’s only job is making sure the buyer can access the goods at his premises (works, factory, warehouse, plant) on the date agreed upon.
• Ex-Works term is often used when making an initial quotation for the sale of goods without any costs included
• The Buyer assumes almost all costs and risk throughout the shipping process

2.FCA – Free Carrier (named place of delivery)

• The seller hands over the goods, cleared for export, into the disposal of the first carrier (named by the buyer) at the named place.
• The seller chooses and works with the freight forwarder.
• The seller pays for carriage to the named port of delivery (Exporter port), and risk passes when the goods are handed over to the first carrier
• "Delivery" is accomplished at a predetermined port or destination point and the buyer is responsible for Insurance.

3.CPT - Carriage Paid To (named place of destination)

• Same seller responsibilities as FCA with one difference: the seller covers delivery costs

4.CIP – Carriage and Insurance Paid to (named place of destination)

• The containerized transport/multimodal the equivalent of CIF.
• The Seller pays for carriage and buys cargo insurance to the named destination point
• The Seller risk passes when the goods are handed over to the first carrier.

5.DAT – Delivered at Terminal (named terminal at port or place of destination)

• The Seller pays for carriage to the terminal, except for costs related to import clearance
• The Seller assumes all risks up to the point that the goods are unloaded at the terminal.
• The Buyer sorts import clearance and any related duties

6.DAP – Delivered at Place (named place of destination)

• The Seller pays for carriage to the destination place, except for costs related to import clearance
• The Seller assumes all risks prior to the point out that the goods are ready for unloading by the buyer.  

7.DDP – Delivered Duty Paid (named place of destination)

• Seller is responsible for delivering the goods to the named place in the country of the buyer
• Seller pays all costs including import custom clearance duties and taxes
• This term places the maximum obligations on the seller and minimum obligations on the buyer.

Rules for Sea and Inland Waterway Transport

The four rules defined by Incoterms 2010 for international trade where transportation is entirely conducted by water are:

1.FAS – free alongside Ship (named port of shipment)

• The seller must clear the goods for export.
• The seller delivers when the goods are placed alongside the vessel 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
• The Buyer bears all costs from that moment onwards

2.FOB – Free on Board (named port of shipment)

• The seller must load the goods on board the vessel nominated by the buyer. 
• Cost and risk are divided when the goods are actually on board of the vessel (this rule is new!).
• The seller must sort out export clearance
• The buyer must instruct the seller the details of the vessel and the port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder.
• "Delivery" is accomplished when the shipper/seller releases the goods to the buyer's forwarder.
• Buyer bears all costs from that moment onwards.

3.CFR – Cost and Freight (named port of destination)

• The seller also chooses the forwarder
• Seller must pay the costs and freight to bring the goods to the port of destination (Importer port)
• Seller Risk is transferred to the buyer once the goods are loaded on the vessel (this the rule is new!).
• This the term is formerly known as CNF (C&F).

4.CIF – Cost, Insurance and Freight (named port of destination)

• The seller has the same responsibility as CFR, in addition, procure and pay for the insurance