WHAT ARE INCOTERMS?


INCOTerms, short for International Commercial Terms, are a set of standardized terms used in international trade to define the responsibilities, risks, costs, and obligations of buyers and sellers involved in the transportation and delivery of goods. They are published by the International Chamber of Commerce (ICC) and are recognized globally to clarify the terms of sale in international contracts. Here's a beginner's guide to some commonly used INCOTerms:

Group 1: Terms for Any Mode of Transport

  • EXW - Ex Works

    • The seller's responsibility ends when the goods are made available at their premises or another agreed-upon location.

    • The buyer bears all costs and risks from this point onwards, including transportation, export clearance, and import duties.

  • FCA - Free Carrier

    • The seller delivers the goods to a carrier or another party nominated by the buyer at an agreed-upon location.

    • The seller's responsibility ends upon delivery to the carrier, and the buyer assumes responsibility from that point forward.

  • CPT - Carriage Paid To

    • The seller is responsible for delivering the goods to a carrier or another agreed-upon destination.

    • The seller bears the transportation costs to the agreed-upon destination but assumes no risk after handing over the goods to the carrier.

  • CIP - Carriage and Insurance Paid To

    • Similar to CPT but includes insurance coverage provided by the seller until the goods reach the agreed-upon destination.

  • DAP - Delivered at Place

    • The seller is responsible for delivering the goods to an agreed-upon location (buyer's premises or another location).

    • The seller bears all risks and costs until the goods are ready for unloading by the buyer.

  • DPU - Delivered at Place Unloaded (replacing DAT - Delivered at Terminal)

    • The seller delivers the goods to the buyer at an agreed-upon destination, ready for unloading.

    • The seller assumes all risks and costs until the goods are unloaded at the specified destination.

Group 2: Terms for Sea and Inland Waterway Transport

  • FAS - Free Alongside Ship

    • The seller delivers the goods to a specific port and places them alongside the vessel nominated by the buyer.

    • The buyer bears all risks and costs from this point onward, including loading, transportation, and customs clearance.

  • FOB - Free on Board

    • The seller delivers the goods on board the vessel at the designated port of shipment.

    • The seller's responsibility ends when the goods pass the ship's rail, and the buyer assumes all risks and costs thereafter.

  • CFR - Cost and Freight

    • The seller delivers the goods on board the vessel at the designated port of shipment and pays for the transportation to the destination port.

    • The buyer is responsible for insurance and risks once the goods are loaded on the vessel.

  • CIF - Cost, Insurance, and Freight

    • Similar to CFR, but the seller also provides insurance coverage for the goods during transportation to the destination port.

Key Points:

  • Understanding and correctly using INCOTerms is crucial for establishing clear agreements between buyers and sellers in international trade.

  • Each INCOTerm specifies the point at which responsibility, risks, and costs transfer from the seller to the buyer.

  • Always specify the chosen INCOTerm in the sales contract to avoid misunderstandings or disputes.

This summary serves as an introductory guide to INCOTerms. It's recommended to consult the latest ICC publication on INCOTerms and seek professional advice when applying these terms in international trade contracts.