INCOTERMS

 
 
Incoterms or International Commercial terms are a series of international sales with terms, published by International Chamber of Commerce (ICC) and widely used in international commercial transactions. These are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most used terms in international trade. This reduces or removes altogether uncertainties arising from different interpretation of such terms in different countries. Scope of this is limited to matters relating to rights and obligations of the parties to the contract of sale with respect to the delivery of goods sold. They are used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices. They closely correspond to the U.N. Convention on Contracts for the International Sale of Goods. The first version was introduced in 1936 and the present dates from 2000.

As of January 1, 2020 new edition, Incoterms 2020 have effect. The changes therein affect some of the terms previously listed in section D, which are now obsolete and have been replaced with new terms:

  • DAT (Delivered at Terminal) replaced with DPU
  • DPU (Delivered at Place Unloaded)

The new terms apply to all modes of transport.

Contents
  • 1 Group E - Departure
  • 2 Group F - Main carriage unpaid
  • 3 Group C - Main carriage paid
  • 4 Group D - Arrival
  • 5 Summary of terms
 

Group E - Departure
EXW Ex Works (named place).
The seller makes the goods available at his premises. The buyer is responsible for all charges.
This trade term places the greatest responsibility on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included.

EXW means that a seller has the goods ready for collection at his premises (Works, factory, warehouse, plant) on the date agreed upon.
The buyer pays all transportation costs and also bears the risks for bringing the goods to their final destination.

The seller delivers the good at seller's premises or named place (works, factory and warehouse), but not loaded on collecting vehicles and not cleared for export.
The seller has no obligation to load the goods, even though in practice he may be in a better position to do so. If the seller does load the good, he does so at buyer's risk and cost.
If parties wish seller to be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the Contract of sale.

Group F - Main carriage unpaid
FCA Free Carrier (named places).
The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place. This term is suitable for all modes of transport, including carriage by air, rail, road, and containerized / multi-modal sea transport. This is the correct "freight collect" term to use for sea shipments in containers, whether LCL (less than container load) or FCL (full container load).
FAS Free Alongside Ship (named loading port).
The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. Suitable only for maritime transport but NOT for multimodal sea transport in containers (see Incoterms 2010, ICC publication 715). This term is typically used for heavy-lift or bulk cargo.
FOB Free on board (named loading port).
The seller must themself load the goods on board the ship nominated by the buyer, cost and risk being divided at ship's rail. The seller must clear the goods for export. Maritime transport only but NOT for multimodal sea transport in containers (see Incoterms 2010, ICC publication 715). The buyer must instruct the seller the details of the vessel and port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder. It does not include Air transport. This term has been greatly misused over the last three decades ever since Incoterms 1980 explained that FCA should be used for container shipments.

Group C - Main carriage paid
CFR Cost and Freight (named destination port).
Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the ship (this rule is new since 2010). Maritime transport only and Insurance for the goods is NOT included. Insurance is at the Cost of the Buyer.
CIF Cost, Insurance and Freight (named destination port).
The same as CFR except that the seller must in addition procure and pay for insurance for the buyer. Maritime transport only.
CPT Carriage Paid To (named place of destination).
The general/containerized/multimodal equivalent of CFR. The seller pays for carriage to the named point of destination, but risk passes when the goods are handed over to the first carrier.
CIP Carriage and Insurance Paid (To) (named place of destination).
The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.

Group D - Arrival
The number of Incoterms rules it will be 11.
This has been achieved by substituting new rules that may be used irrespective of the agreed mode of transport DAT, delivered at terminal, replaced with DPU, delivered at place unloaded, for the Incoterms - 2010 rules DAF, DES, DEQ and DDU.
Under the new rules, delivery occurs at a named destination: in DAT, at the buyer’s disposal unloaded from the arriving vehicle (as under the former DEQ rule);
In DPU, likewise at the buyer’s disposal, but ready for unloading (as under the former DAF, DES and DDU rules).
The new rules make the Incoterms 2010 rules DES and DEQ superfluous. The named terminal in DAT may well be in a port, and DAT can therefore safely be used in cases where the Incoterms 2010 rule DEQ once was. Likewise, the arriving vehicle under DAP may well be a ship and the named place of destination may well be a port: consequently, DAP can safely be used in cases where the Incoterms 2010 rule DES once was.
These new rules, like their predecessors, are delivered, with the seller bearing all the costs (other than those related to import clearance, where applicable) and risks involved in bringing the goods to the named place of destination .
DAP Delivered At Place (named destination place).
This term 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. This is exactly what the old Incoterm DDU stipulated.
DDP Delivered Duty Paid (named destination place).
This term means that the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty. Also used interchangeably with the term "Free Domicile". The most comprehensive term for the buyer. In most of the importing countries, taxes such as (but not limited to) VAT and excises should not be considered prepaid being handled as a "refundable" tax. Therefore VAT and excises usually are not representing a direct cost for the importer since they will be recovered against the sales on the local (domestic) market.
DPU Delivered at Place Unloaded (DPU) (formerly referred to as DAT for “Delivered at Terminal”) requires the seller to deliver the goods at the disposal of the buyer after they have been unloaded from the arriving means of transport.The buyer and seller should specify and agree upon a named place of destination.


 
NOTE: The following information refers to Incoterms 2010 and is now replaced with different information in Incoterms 2020.
For a given term, "Yes" indicates that the seller has the responsibility to provide the service included in the price.
For given term "No" indicates it is the buyer's responsibility.
Insurance is not included in all other terms, according to the news in Incoterm 2020, it is negotiable.
Insurance is included only in CIF and CIP terms, it has to be seller’s responsibility.