What are Incoterms?
Incoterms are standard trade definitions, that set out to establish buyer and seller responsibilities. The aim of Incoterms is to avoid misunderstanding primarily in agreements about the delivery of goods.
They are in effect a set of rules accepted by governments, legal authorities, shipping agents etc. throughout much of the world and as such the uncertainties of different interpretations of such terms can be avoided or at least reduced.
Who regulates Incoterms
Incoterms are regulated, i.e. devised, updated and published by the International Chamber of Commerce.
The first four letters i.e. "Inco" are derived from the words "International Commercial", so International Commercial Terms becomes Incoterms, or as it is sometimes written, Inco-terms.
Each of the current 11 incoterms is explained below, however you should not rely on this description in a contract. Full definitions can be obtained from the International Chamber of Commerce
website.
Are Incoterms Law?
Incoterms are not part of international law, rather, they are part of commercial contracts. As such, they are recognised in courts and international arbitration to settle commercial disputes.
Incoterms Explained
There are 4 groups of Incoterms; namely E, F, C, and D terms. These groups are determined by the delivery location and who is responsible for covering the cost of each part of the journey. Each incoterm group, and incoterm rule is explained below;
Group E Incoterms
Under Group E Incoterms rules the seller minimises their risk by only making the goods available at his own premises.
EXW - Ex Works. The seller makes the goods available at their premises. The buyer is responsible for all loading, transportation and delivery costs. Risk transfers from the seller to the buyer when the goods are at the disposal of the buyer.
Group F Incoterms
Under Group F Incoterms rules, and under FCA Unless otherwise agreed, the seller arranges and pays for the pre-carriage in the country of export.
FCA - Free Carrier. The seller delivers the goods to the carrier nominated by the buyer at the seller's premises. The buyer is responsible for all transportation and delivery costs.
FAS - Free Alongside Ship. The seller delivers the goods alongside the vessel at the agreed port of shipment. The buyer is responsible for all transportation and delivery costs. Risk transfers from the seller to the buyer when the goods have been placed alongside the ship.
FOB - Free On Board. The seller delivers the goods on board the vessel at the agreed port of shipment. The buyer is responsible for all transportation and delivery costs. Risk transfers from the seller to the buyer when the goods pass the ship's rail.
Group C Incoterms
Under Group C incoterms rules the seller arranges and pays for the main carriage but without assuming the risk of the main carriage.
CFR - Cost And Freight. The seller delivers the goods on board the vessel at the agreed port of shipment and pays for the cost of transportation to the agreed port of destination. The buyer is responsible for all other costs, including customs clearance and delivery to their final destination.
CIF - Cost, Insurance and Freight. The seller delivers the goods on board the vessel at the agreed port of shipment and pays for the cost of transportation and insurance to the agreed port of destination. The buyer is responsible for all other costs, including customs clearance and delivery to their final destination.
CPT - Carriage Paid To. The seller pays for the cost of transportation to the agreed place of destination. The buyer is responsible for all other costs, including customs clearance and delivery to their final destination.
CIP - Carriage and Insurance Paid to. The seller pays for the cost of transportation and insurance to the agreed place of destination. The buyer is responsible for all other costs, including customs clearance and delivery to their final destination.
Group D Incoterms
Under Group D terms the seller's cost and risk is maximised because they must make the goods available on arrival at the agreed destination.
DAP - Delivered At Place. The seller delivers the goods at the agreed frontier, but the buyer is responsible for all transportation and delivery costs.
DPU - Delivered at Place Unloaded. The seller delivers the goods to the agreed port of destination, but the seller is responsible for all transportation and delivery costs.
DDP - Delivered Durty Paid. The seller delivers the goods at the agreed port of destination, but the buyer is responsible for all transportation and delivery costs.
Return to Technical Toolbox index
