INCOTERMS® 2010

1.    What are Incoterms?

Incoterms are a number of clearly defined commercial terms that are widely used around the world for transactions involving transport of goods. In a nutshell, Incoterms are a simple shorthand code for defining more complex and detailed contractual terms. However, Incoterms are not a substitute for a written contract. They merely make it easier to communicate terms for certain issues that are common to most transactions, such as defining responsibility for delivery to a port, responsibility for insuring the cargo or responsibility for arranging customs clearance. A formal written contract can incorporate Incoterms for these matters and expand upon them as necessary.

Incoterms are published by the International Chamber of Commerce and are now revised roughly every ten years. Incoterms were first defined and adopted in 1936 and the latest version of the terms, Incoterms 2010, was published on 1 January 2011. Incoterms are widely recognized around the world and are used by governments and courts to interpret contractual agreements.

2.    What is the benefit of using incoterms?

Incoterms make agreeing on the terms of commercial transactions easier because the precise contractual details do not have to be rewritten and communicated for every new transaction. Without Incoterms the process of agreement would take longer and the likelihood of miscommunication arising from language barriers would increase.

Incoterms 2010 defines 11 pre-defined terms and these are divided into two (2) categories based on the mode of transport used for delivery. Seven of the terms can be adopted regardless of the mode of transport, where as the remaining four terms apply only to transport over water.

3.    Explanation of individual Incoterms

Brief explanations for each Incoterm are setout below, divided into the two mode of transport categories.

3.1   Common Incoterms for any mode of transport

The following are the latest Incoterms that can be adopted any mode of transport:

EXW – Ex Works (named place of delivery) (e.g. EXW Hamburg)

The seller is responsible for making the goods available at its named premises on a set date. The buyer is responsible for loading the goods at the seller’s premises, transporting and unloading the goods at the final destination. The buyer also bears all the risks associated with transporting the goods to their destination.

EXW places the maximum obligation on the buyer and the least on the seller.

FCA – Free Carrier (named place of delivery) (e.g. FCA Sydney)

The seller is responsible for handing over the goods, cleared for export, to a named carrier at a named place on a set date. The seller is responsible for the cost of transport to the named place of delivery to the carrier. The seller bears the risk up until delivery to the carrier at which point the risk passes to the buyer.

CPT - Carriage Paid To (named place of destination) (e.g. CPT San Francisco)

The seller pays the cost of transport to a named foreign destination. Risk passes from the seller to the buyer upon delivery to a named carrier in the seller’s country.

CIP – Carriage and Insurance Paid to (named place of destination)

The seller pays the cost of carriage and insurance to the named foreign destination, but risk passes when the goods are handed over to the first carrier. The CIP term is the same as CPT but with the addition of insurance arranged and paid for by the seller.

DAT – Delivered at Terminal (named terminal at port or place of destination)

The seller pays the cost of transport to a named terminal at the final destination, except for the costs relating to import clearance. The risk passes from the seller to the buyer at the point at which the goods are unloaded at the destination terminal.

DAP – Delivered at Place (named place of destination)

The seller pays the cost of transport to the named destination, except for the costs relating to import clearance. The risk passes from the seller to the buyer at the point at which the goods are ready to be unloaded by the buyer.

DDP – Delivered Duty Paid (named place of destination)

The seller pays the costs of transport to the named final destination as well as all import duties and taxes.

DDP places the maximum obligation on the seller and the least on the buyer.

3.2   Incoterms applying to transport by sea and inland waterways only

The following are the latest Incoterms applicable which goods are transported exclusively by sea or inland waterways:

FAS – Free Alongside Ship (named port of shipment)

The seller is responsible for the cost and transport of delivering the goods alongside a ship at a name port of departure in the country of origin. The seller is also responsible for arranging the export clearance of the goods.

FOB – Free on Board (named port of shipment)

The seller is responsible for transport and loading of the goods onto a vessel named by the buyer. The seller is also responsible for arranging the export clearance of the goods. Risk passes from the seller to the buyer at the point at which the goods are placed onboard the ship.

CFR – Cost and Freight (named port of destination)

The seller is responsible for the costs to transport the goods to the named final destination port. However, risk passes from the seller to the buyer at the point at which the goods are loaded on to the ship and insurance is not included in the sellers responsibilities.

CIF – Cost, Insurance and Freight (named port of destination)

The seller is responsible for the costs to transport the goods to the named final destination port as well as their insurance. However, risk passes from the seller to the buyer at the point at which the goods are loaded on to the ship. The CIF term is the same as CFR but with the addition of insurance arranged and paid for by the seller.

Incoterms is a registered trademark of the International Chamber of Commerce.