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Incoterms

  • Incoterms

Incoterms

General information

International trade can often be confusing for both buyers and sellers. To avoid misunderstandings and ambiguities, it is important to define the responsibilities, costs and risks of all participants in advance.

For that purpose, the International Chamber of Commerce (ICC) adopted International Commercial Terms (Incoterms), ie. International rules for the interpretation of trade terms. These rules officially apply to the sale of goods worldwide.

Incoterms contain precise rules that regulate the economic and legal relations between the seller (exporter) and the buyer (importer), and indirectly apply to carriers, freight forwarders, ports and harbors, maritime agents, customs authorities, insurance companies, etc.

It is a set of terms that help companies conduct sales activities around the world and provide specific guidelines for global trade.

Since its initial publication in 1936, the ICC has continuously maintained and developed these rules. Incoterms® 2020 is the latest edition, which should be relied on until further notice.

Incoterms rules for all modes of transport

EXW - Ex Works (insert place of delivery)

This rule places a minimum responsibility on the seller, who only needs to make the goods available to the buyer, suitably packaged, in a certain place (in his factory, plant, warehouse, mine ...) The buyer is responsible for loading the goods into the vehicle (although the seller perhaps in a better position to do so); for all export operations; for further transport and for all costs incurred after taking over the goods. Although the seller is not obliged to load the goods, if he does, it is at the buyer's risk!

FCA - Free Carrier (Insert named place of delivery)

It can be used for any mode of transport or where there is more than one mode of transport. A very flexible rule that is suitable for all situations in which the buyer organizes the transport of goods. The seller is responsible for customs clearance of exports; the buyer assumes all risks and costs after the goods have been delivered to the specified place.

CPT - Carriage Paid to (insert place of destination)

The seller bears the costs and is responsible for arranging transportation to the specified location, but not for insuring the goods to the specified location. However, the delivery of goods takes place and the risk is transferred from the seller to the buyer, at the place where the carrier takes over the goods.

CIP - Carriage and Insurance Paid To (insert place of destination)

As with the CPT, the delivery of goods takes place and the risk is transferred from the seller to the buyer, at the place where the carrier picks up the goods. The difference is that in this case, the seller is obliged to take care of the minimum insurance of goods in transit.

DAP - Delivered at Place (insert named place of destination)

The seller is responsible for organizing the transport and delivery of goods ready for unloading from the arrived means of transport to the specified place. The risk is transferred from the seller to the buyer when the goods are available for unloading; so unloading is at the buyer's risk. The buyer is responsible for customs clearance of imports and all applicable local taxes or import duties.

DPU - Delivered at Place Unloaded (insert of place of destination)

The seller is responsible for organizing the transport and delivery of goods unloaded from the arrived means of transport to the specified place. The risk is transferred from the seller to the buyer when the goods are unloaded. This is the only rule that requires the seller to unload the goods in order to make the delivery. The buyer is responsible for customs clearance of imports and all applicable local taxes or import duties.

DDP - Delivered Duty Paid (Insert place of destination)

The seller is responsible for organizing the transport and delivery of goods to the designated place in the buyer's country, as well as for all accompanying taxes and duties. The risk is transferred from the seller to the buyer when the goods are made available to the buyer and ready for unloading from the arrived means of transport. This rule places a maximum obligation on the seller and is the only rule that requires the seller to take responsibility for customs clearance of imports and payment of taxes and / or import duties.

Incoterms rules for Sea and Inland Waterway Transport

FAS - Free Alongside Ship (insert name of port of loading)

The seller delivers the goods, cleared for export, next to the vessel in the contracted port, at which point the risk passes to the buyer. The buyer is responsible for the loading of the goods and any costs thereafter.

FOB - Free on Board (insert named port of loading)

The seller delivers the goods, cleared for export, to the deck of the ship in the contracted port. When goods are loaded on a ship, the risk is transferred to the buyer, who bears all costs thereafter.

CFR - Cost and Freight (insert named port of destination)

The seller organizes and pays for transportation to the agreed port. The seller delivers the goods, cleared for export, loaded on the ship. The seller pays the costs and freight that are needed to bring the goods to the agreed port. However, the risk is transferred from the seller to the buyer when the goods are loaded on the ship, ie before the main transport is performed. The seller is not responsible for insuring the goods during transport.

CIF - Cost Insurance and Freight (insert named port of destination)

The same as for CFR, except that in this case the seller also organizes and pays insurance for the goods for transport to the contracted port.

Incoterms

How are Incoterms listed?

Incoterms rules don't represent a complete sales contract, but only a part of it. The following structure should be used for adequate application:
“[The chosen Incoterms® rule] [Named port, place or point] Incoterms® 2020”

Example: “CIF Shanghai Incoterms® 2020” or “DAP 10 Downing Street, London, Great Britain Incoterms 2020“

If there is no year stated in the Incoterms then the following applies:
- until December 31st 2019, the Incoterms 2010 apply.
- from January 1st 2020, the Incoterms 2020 apply

More about Incoterms rules, read at the ICC official website.

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