The Incoterms rules or International Commercial Terms are a series of predefined commercial terms published by the International Chamber of Commerce (ICC) that are widely used in International commercial transactions or procurement processes. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods.
The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide.
First published in 1936, the Incoterms rules have been periodically updated, with the eighth version— Incoterms® 2010—having been published on January 1, 2011. “Incoterms” is a registered trademark of the ICC.
International commercial terms or Incoterms are a series of sales terms that are used by businesses throughout the world. Incoterms are used to make international trade easier. They are used to divide transaction costs and responsibilities between buyer and seller. Incoterms were introduced in 1936 and they have been updated six times to reflect the developments in international trade. The latest revisions are sometimes referred to as Incoterms 2000. There are thirteen Incoterms that are used by businesses and are used in four different areas.
Departure (Group E)
EXW – Ex Works
EXW means Ex Works and is followed by a named place, for example EXW New York. EXW means the seller’s responsibility is to make the goods available at the seller’s premises. The seller is not responsible for loading the goods on the vehicle provided by the buyer, who then bears the full cost involved in bringing the goods from there to the desired destination.
Main Carriage Not Paid By Seller (Group F)
FCA – Free Carrier
FCA means Free Carrier and is followed by a named place, for example FCA Miami. FCA means the seller fulfills its obligation to deliver when it has handed over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place. If no precise point is indicated by the buyer, the seller may choose within the place or range stipulated where the carrier shall take the goods into its charge.
FAS – Free Alongside Ship
FAS means Free Alongside Ship and is followed by a named port of shipment, for example FAS Barranquilla. FAS means the seller is responsible for the cost of transporting and delivering goods alongside a vessel in a port in his country. As the buyer has responsibility for export clearance, it is not a practical incoterm for U.S. exports. FAS should be used only for ocean shipments since risk and responsibility shift from seller to buyer when the goods are placed within the reach of the ship’s crane.
FOB – Free On Board
FOB means Free On Board and is followed by the named port of shipment, for example FOB Dalian. With FOB the goods are placed on board the ship by the seller at a port of shipment named in the sales agreement. The risk of loss of or damage to the goods is transferred to the buyer when the goods pass the ship’s rail, i.e. off the dock and placed on the ship. The seller pays the cost of loading the goods.
Main Carriage Paid By Seller (Group C)
CFR – Cost And Freight
CFR means Cost and Freight and is followed by a named port of destination, for example CFR Suzhou. CFR requires the seller to pay the costs and freight necessary to bring the goods to the named destination, but the risk of loss or damage to the goods, as well as any cost increases, are transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment. Insurance is the buyer’s responsibility.
CIF – Cost, Insurance And Freight
CIF means Cost, Insurance and Freight and is followed by a named port of destination, for example CIF Balboa. CIF is similar to CFR with the additional requirement that the seller purchases insurance against the risk of loss or damage to goods. The seller must pay the premium. Insurance is important in international shipping, more than domestic US shipping, because U.S. laws generally hold a common carrier to be liable for lost or damaged goods.
CPT – Carriage Paid To
CPT means Carried Paid To and is followed by a named place of destination, for example CPT Miami. CPT means that the seller must pay the freight for the carriage of the goods to the named destination. The risk of loss or damage to the goods and any cost increases transfers from the seller to the buyer when the goods have been delivered to the custody of the first carrier, and not at the ship’s rail.
CIP – Carriage And Insurance Paid To
CIP means Carriage And Insurance Paid To and is followed by a named place of destination, for example CIP Colon. CIP has the same incoterm meaning as CPT, but in addition the seller pays for the insurance against loss of damage.
Arrival (Group D)
DAF – Delivered At Frontier
DAF means Delivered At Frontier and is followed by a named place, for example DAF Manzanillo. DAF means that the seller’s responsibility is complete when the goods have arrived at the frontier but before the customs border of the country named in the sales contract. This buyer is responsible for the cost of the goods to clear customs.
DES – Delivered Ex Ship
DES means Delivered Ex Ship and is followed by a named port of destination, for example DES Buenaventura. DES means the seller shall make the goods available to the buyer on board the ship at the place named in the sales contract. The cost of unloading the goods and associated customs duties are paid by the buyer.
DEQ – Delivered Ex Quay
DEQ means Delivered Ex Quay and is followed by a named port of destination, for example DEQ San Diego. DEQ means the seller has agreed to make the goods available to the buyer on the quay (wharf) at the place named in the sales contract.
DDU – Delivered Duty Unpaid
DDU means Delivered Duty Unpaid and is followed by a named place of destination, for example DDU Cartagena. The seller has to bear the costs involved in shipping the goods as well as the costs and risks of carrying out customs formalities. The buyer pays the duty and has to pay any additional costs caused by its failure to clear the goods for import in time.
DDP – Delivered Duty Paid
DDP means Delivered Duty Paid and is followed by a named place of destination, for example DDP Puerto Limon-Moin. The seller has to pay the costs involved in shipping the goods as well as the costs and risks of carrying out customs formalities. The seller pays the duty and the buyer has to pay any additional costs caused by its failure to clear the goods for import in time. DDP should not be used if the seller is unable to obtain an import license.