Incoterms are rules established by the International Chamber of Commerce (ICC) in order to clarify the following matters on the international commerce:
- Costs split;
- Place of delivery of the merchandise;
- Who bears the risk of transportation
- Responsibility of customs duty.
The use of these rules is not mandatory – both parts of the business have to accept them – but its usage is generalized in forwarding activity.
The last version of these rules is called Incoterms@2020. Once the new revisions of these rules do not repeal the earlier, all versions can be used. In this sense, it is important to identify the version of the Incoterms that is being used.
For any mode or modes of transportation:
EXW (Ex Works) - The seller makes the goods available at its premises. This term places the maximum obligation on the buyer and minimum obligations on the seller. The buyer pays all transportation costs and also bears the risks for bringing the goods to their final destination. The seller doesn't load the goods on collecting vehicles and doesn't clear them for export.
FCA (Free Carrier) - 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...) - The seller pays for carriage. Risk transfers to buyer upon handing goods over to the first carrier.
CIP (Carriage and Insurance Paid to...) - 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.
DAP (Delivered At Place) - 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.
DPU (Delivered at Place Unloaded) - 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.
DDP (Delivered Duty Paid) - 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.
For sea and inland waterway transport:
FAS (Free Alongside Ship) - 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.
FOB (Free on Board) - The seller must load the goods on board the vessel nominated by the buyer. Cost and risk are divided when the goods are actually on board of the vessel (this rule is new!). The seller must clear the goods for export. The term is applicable for maritime and inland waterway transport only but not for multimodal sea transport in containers. The buyer must instruct the seller the details of the vessel and the port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder.
CFR (Costs and Freights) - 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 vessel (this rule is new!). Maritime transport only and Insurance for the goods is not included.
CIF (Costs Insurance and Freight) - Exactly the same as CFR except that the seller must in addition procure and pay for the insurance. Maritime transport only. Click To see the scheme for Incoterms@2000
