Incoterms

“Incoterms” is short for International Rules for the Interpretation of Trade Terms. They are a set of rules defined by the International Chamber of Commerce (ICC) regarding the interpretation of trade terms. The applicable rules are coherently applied to international trade transactions.

Major Characteristics Of Incoterms 2010

When it comes to trade transactions, disputes and conflicts are highly likely to occur due to differences in political, cultural and economic backgrounds and commercial practices among different countries. This problem can be solved through Intercoms. Incoterms is international commercial terms, designed by the International Chamber of Commerce, that can be coherently applied to international transactions, irrespective of the parties, places and goods of transactions. Intercoms, in and of themselves, do not have legal effect, but they can have legal effect provided that the parties sign an agreement to adopt Intercoms.

  1. It contains 11 terms. The DAF, DES, DEQ, and DDU designations have been eliminated, while two new terms, DAT and DAP, have been added.
  2. The rules can be used in both domestic and international trades.
  3. The party to bear costs and risks is made clear regarding THC, etc.
  4. String sales is clarified through the Inclusion of the obligation to “procure goods shipped” as an alternative to the obligation to “ship” goods.
  5. EXW, FAS, FOB, CFR, CIF, CPT, CIP, DAT, DAP, DDP

EXW] EX Works (......named place)

“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 designated place (e.g., workspace, 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.

This term represents the seller’s minimum obligation. The buyer must bear all costs and risks involved in receiving goods from the seller’s business office. However, if the parties intend that the seller bears the responsibility for loading goods at the time of departure, this should be made clear by adding an express statement specifying this intent to the sales contract.


FAS] Free Alongside Ship (......named port of shipment)

“Free alongside Ship” means that the seller delivers when the goods are placed alongside the vessel nominated by the buyer at the named port of shipment. This means that the buyer must bear all costs and risks of loss of or damage to the goods from that moment.

FAS terms require that the buyer execute clearance procedures for export. However, if the parties intend that the buyer executes clearance procedures for export, this should be made clear by adding an express statement specifying this intent to the sales contract. This term can be used only for sea or inland waterway transport.


FCA] Free Carrier (...named Place)

“Free Carrier” means that the seller delivers the goods that are cleared for export to the carrier nominated by the buyer at the named place. It should be noted that the named place affects the meaning of the loading and unloading of goods at the place. If the goods are delivered to the seller’s workspace, the seller is responsible for loading. If the goods are delivered to other places, the seller is not responsible for unloading. This term can be used irrespective of the mode of transport, including multimodal transport.

“Carrier” refers to a person who executes or obtains transport services that include railway, road, air, sea, inland waterway modes, or a combination of these modes of transport. If the buyer nominated a person other than the carrier, the seller’s obligation to deliver goods is considered to have been fulfilled when the goods are delivered to the nominated person.


FOB] Free On Board (...named port of shipment)

“Free on Board” means that the seller delivers when the goods pass the ship’s rail at the named port of shipment. This means the buyer has to bear all costs and risks of loss of or damage to the goods from that point. Under the FOB term, the seller is required to clear the goods for export. This term can only be used for sea or inland waterway transport. If the parties do not intend to deliver the goods across the ship’s rail, the FCA term should be used.


CFR] Cost and Freight (...named port of destination)

“Cost and Freight” means the seller delivers when the goods pass the ship’s rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination. However, the risks of loss of or damage to the goods, as well as any additional costs due to events that occur after the time of delivery, are transferred from the seller to the buyer.

Under the CFR term, the seller is required to clear the goods for export. This term can only be used for sea or inland transport. If the parties do not intend to deliver the goods across the ship's rail, the CPT term should be used.


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

“Cost, Insurance, and Freight” means that the seller delivers when the goods pass the ship’s rail in the port of shipment. The seller must pay the cost and freight necessary to bring goods to the named port of destination. However, the risks of loss of or damage to the goods, as well as any additional costs due to events that occur after the time of delivery, are transferred from the seller to the buyer.

Furthermore, according to the CIF term, the seller has to procure marine insurance against the buyer’s risk of loss of or damage to the goods during the carriage.

Consequently, the seller contracts and pays for insurance coverage. The buyer should note that under the CIF term, the seller is required to obtain insurance only on the minimum coverage. Should the buyer wish to have additional insurance protection, it must either agree as much expressly with the seller or prepare its own arrangements for additional insurance. Under the CFR term, the seller is required to clear the goods for export. This term can only be used for sea or inland waterway transport. If the parties do not intend to deliver the goods across the ship's rail, the CIP term should be used.


CPT] Carriage Paid To (...named port of destination)

“Carriage Paid to” means that the seller delivers the goods to the carrier nominated by the seller and that the seller must pay the costs of carriage necessary to bring the goods to the named place of destination. This means that the buyer bears all risks and any additional costs due to events that occur after the time of delivery. If several carriers are used to deliver the goods to the named place of destination, the risks are transferred from the seller to the buyer when the goods are delivered to the first carrier.


CIP] Carriage and Insurance Paid To (...named port of destination)

“Carriage and Insurance Paid to” means that the seller delivers the goods to the carrier nominated by the seller and that the seller must pay the costs of carriage necessary to bring the goods to the named place of destination. This means that the buyer bears all risks and any additional costs due to events that occur after the time of delivery. However, according to the CIP term, the seller has to procure insurance against the buyer’s risk of loss of or damage to the goods during the carriage.

Consequently, the seller contracts and pays for insurance coverage. The buyer should note that under the CIP term, the seller is required to obtain insurance only on minimum coverage. Should the buyer wish to have additional insurance protection, it must either to agree as much expressly with the seller or prepare its own arrangements for additional insurance. The carrier has the obligation to execute or obtain transport services that include railway, road, air, sea, inland waterway modes, or a combination of these modes of transport. If several carriers are used to deliver the goods to the named place of destination, the risks are transferred from the seller to the buyer when the goods are delivered to the first carrier. Under the CIP term, the seller is required to clear the goods for export. This term can be used irrespective of the mode of transport, including multimodal transport.


DAT] Delivered At Terminal (...named terminal at part or place of destination)

“Delivered at Terminal” means that the seller delivers when the goods, upon unloading 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 covered or uncovered place 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.

Under the DAT term, the seller should clear the goods for export if applicable. However, the seller does not have the obligation to clear the goods for import, bear import duties, or perform customs formalities for import.


DDP] Delivered Duty Paid (...named place of destination)

“Delivered Duty Paid” means that the seller delivers the goods when the goods are placed at the disposal of the buyer. The goods are cleared for import on the arriving means of transport and are 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, including all customs duties for import imposed by the country of destination (responsibilities and risks involved in performing customs formalities, customs fees, customs duties and taxes, and public utilities charges)

The term DDP represents the maximum obligation to the seller, while the term EWX represents the seller’s minimum obligation. This term DDP should not be used if the seller is unable to directly or indirectly obtain the import license. However, if the parties intend to exclude some of the expenses (e.g., taxes and the public utilities charges) that must be paid at the time of import from the buyer’s obligations, this should be made clear by adding an express statement specifying this intent to the sales contract.