Developed by the International Chambers of Commerce (ICC), the Incoterms rules are probably the one set of rules you should get familiar with when planning an export business. The word Incoterms is an abbreviation used to express a selection of rules that guide international trade known as International Commercial Terms.
Incoterms are essential export knowledge as they are used to legally determine who is responsible for any part of the shipping process when exporting. To date, there are a total of 11 Incoterms which form a part of the language of international trade.
The International Chamber of Commerce keeps and updates a list of its Incoterms with more details about them. Follow the link to the ICC website for more information: Incoterms® rules 2010 – ICC – International Chamber of Commerce iccwbo.org
However, for this article, we’ll briefly examine these Incoterms with enough information for day to day use.
Structure & Definition
Each of the 11 Incoterms is a three-letter abbreviation of the rules set by the ICC for international trade. There are two broad categories for the Incoterms rules. One describes terms for when goods are shipped through any of the various means of transportation, and the other describes terms for sea freight and inland waterways The 11 terms and a short description of each are listed below. However, you can find much more information, including a broader definition of Incoterms on the ICC website. There are also books and other resources available for purchase on the site. Follow the source linked below for more information :
RULES FOR ANY MODE OR MODES OF TRANSPORT.
EXW – Ex Works
“Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or another named place (i.e., works, factory, warehouse, setc.). 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.
FCA – Free Carrier
“Free Carrier” means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another 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.
CPT – Carriage Paid To
“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.
CIP – Carriage And Insurance Paid To
“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 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.
‘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.”
DAT – Delivered At Terminal
“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.
DAP – Delivered At Place
“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.
DDP – Delivered Duty Paid
“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.
RULES FOR ANY MODE OR MODES OF TRANSPORT.
FAS – Free Alongside Ship
“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.
FOB – Free On Board
“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.
CFR – Cost and Freight
“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.
CIF – Cost, Insurance and Freight
“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.”
source: The ICC website. International Chamber of Commerce – iccwbo.org, (Follow the link to purchase Incoterms handbooks and more) http://store.iccwbo.org
Conclusion
Incoterms have provided a standardised language for international commerce. The use of Incoterms rules has greatly reduced the burden of language barriers, traders face across national borders.
It is important to note, however, that Incoterms are only helpful as part of a shipping contract and do not make up an agreement on their own. Also, Incoterms rules only cover conditions that affect the shipment process, meaning further arrangements might be necessary to safeguard a trade after the ownership of goods change hands.
Further reading
Introduction to Incoterms BY The ICC – https://cdn.iccwbo.org/…/ICC-Introduction-to-the-Incoterms-2010.pdf
The Introduction To Incoterms 2010 is a free publication by the International Chambers of Commerce, developed to introduce Incoterms and its rules to global import and export communities. Click the link above to read and download.