The Incoterms rules or International Commercial terms are series of pre-defined commercial terms widely used in international commercial transactions. The Incoterms rules are intended primarily to clearly communicate the tasks, costs and risks associated with the transportation and delivery of goods. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries.
First published in 1936, the Incoterms rules have been periodically updated in 1953, 1967, 1976, 1980, 1990 and 2000, with the eighth version—Incoterms 2010—having been published on January 1st, 2011.
RULES FOR ANY MODE(S) OF TRANSPORT
The seven rules defined by Incoterms 2010 for any mode(s) of transportation are:
- EXW — Ex Works (named place of delivery)
- EXW means that a seller’s only responsibility is to make the goods available at his premises (works or factory). In particular he is not responsible for loading the goods in the vehicle provided by the buyer, unless otherwise agreed. The buyer bears the full cost and risk involved in bringing the goods from there to the desired destination. This term thus represents the minimum obligation for the seller.
- 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 pays for carriage to the named point of delivery, and risk passes when the goods are handed over to the first carrier.
- CPT — Carriage Paid To (named place of destination)
- The seller pays for carriage. Risk transfers to buyer upon handing goods over to the first carrier.
- CIP — Carriage and Insurance Paid to (named place of destination)
- The seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.
- DAT — Delivered at Terminal (named terminal at port or place of destination)
- Seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.
- DAP — Delivered at Place (named place of destination)
- Seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.
- 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, and pays all costs in bringing the goods to the destination including import 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:
- FAS — Free Alongside Ship (named port of shipment)
- Under this term of shipment the seller’s obligations are fulfilled when the goods have been placed alongside the ship on the quay or in lighters. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. The seller must clear the goods for export. This term is typically used for heavy-lift or bulk cargo.
- FOB — Free on Board (named port of shipment)
- The goods are placed on board the ship by the seller at a port of shipment named in the sales contract. The seller must clear the goods for export. The risk of loss of or damage to the goods is transferred from the seller to the buyer when the goods pass the ship’s rail.
The seller must clear the goods for export.
- CFR — Cost and Freight (named port of destination)
- Seller must pay the costs and freight necessary to bring the goods to the named destination. However, risk of loss of or damage to the goods is transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment.
- CIF — Cost, Insurance and Freight (named port of destination)
- This term is basically the same as CFR but with the addition that the seller has to procure marine insurance against the risk of loss of or damage to the goods during the carriage. The seller contracts with the insurer and pays the insurance premium.
PREVIOUS TERMS FROM INCOTERMS 2000 THAT WERE ELIMINATED FROM INCOTERMS 2010
- DAF — Delivered At Frontier (named place of delivery)
- This term can be used when the goods are transported by rail and road. The seller pays for transportation to the named place of delivery at the frontier. The buyer arranges customs clearance and pays for transportation from the frontier to his factory. The passing of risk occurs at the frontier.
- DES — Delivered Ex Ship (named port of delivery)
- Where goods are delivered ex ship, the passing of risk does not occur until the ship has arrived at the named port of destination. The seller pays the same freight and insurance costs. Costs for unloading the goods and any duties, taxes, etc. are for the Buyer.
- DEQ — Delivered Ex Quay (named port of delivery)
- This is similar to DES, but the passing of risk does not occur until the goods have been unloaded at the port of destination.
- DDU — Delivered Duty Unpaid (named place of destination)
- This term means that the seller delivers the goods to the buyer to the named place of destination in the contract of sale. The buyer is responsible for the costs and risks for the unloading, duty and any subsequent delivery beyond the place of destination. However, if the buyer wishes the seller to bear cost and risks associated with the import clearance, duty, unloading and subsequent delivery beyond the place of destination, then this all needs to be explicitly agreed upon in the contract of sale.
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