International Commercial Terms
“Incoterms” is a trademark of the International Chamber of Commerce. Incoterms® rules and trade terms are recognized and accepted as the standard for international trading and are regularly updated as commercial conditions change.
Developed by the International Chamber of Commerce (ICC), and first published in 1936, the rules are designed to ensure that the obligations of all parties involved in international transactions are clear and understood.
When quoting and invoicing your customers, it’s important that there is no confusion over who is responsible for delivering the goods and paying for transport. The use of the Incoterms® 2010 Rules removes the risk of misinterpretation in different countries.
There are 11 Incoterms® rules covering delivery, risks and costs. When you include a particular term in your quote or invoice you should make specific reference to the rules, for example, ‘FOB Southampton – Incoterms® 2010 Rules’.
- CFR – Cost and Freight
- The seller must pay the costs and freight required in bringing the goods to the named port of destination. The risk of loss or damage is transferred from seller to buyer when the goods pass over the ship’s rail in the port of shipment. The seller is required to clear the goods for export.
CIF – Cost, insurance and Freight
- The seller has the same obligations as under CFR however he is also required to provide insurance against the buyer’s risk of loss or damage to the goods during transit. The seller is required to clear the goods for export.
EXW – Ex Work
- The buyer bears all costs and risks involved in taking the goods from the seller’s premises to the desired destination. The seller’s obligation is to make the goods available at his premises (works, factory, and warehouse). This term represents the minimum obligation for the seller.
FCA – Free Carrier
- The seller’s obligation is to hand over the goods, cleared for export, into the charge of the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, the seller may choose within the place or range stipulated where the carrier shall take the goods into his charge. When the seller’s assistance is required in making the contract with the carrier the seller may act at the buyers risk and expense.
- CPT – Carriage Paid To
- The seller pays the freight for the carriage of goods to the named destination. The risk of loss or damage to the goods occurring after the delivery has been made to the carrier is transferred from the seller to the buyer. This term requires the seller to clear the goods for export.
- CIP – Carriage and Insurance Paid To
- The seller has the same obligations as under CPT but has the responsibility of obtaining insurance against the buyer’s risk of loss or damage of goods during the carriage. The seller is required to clear the goods for export however is only required to obtain insurance on minimum coverage. This term requires the seller to clear the goods for export.
- DAT – Delivered At Terminal
- The seller is responsible for the costs and risks to bring the goods to the point specified in the contract. The seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes quay, warehouse, container yard or road, rail or air terminal. Both parties should agree the terminal and if possible a point within the terminal at which point the risks will transfer from the seller to the buyer of the goods. The seller is responsible for the export clearance procedures and the importer is responsible for clearing the goods for import, arranging import customs formalities, and paying import duty.
- DAP – Delivered At Place
- The seller bears the responsibility and risks to deliver the goods to a named place. The goods are deemed to be delivered when they are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. Parties are advised to specify as clearly as possible the point within the agreed place of destination, because risks transfer at this point from seller to buyer. The seller is required to clear the goods for export and the importer is responsible for effecting customs clearance, and paying any customs duties.
- DDP – Delivered Duty Paid
- The seller is responsible for delivering the goods to the named place in the country of importation, including all costs and risks in bringing the goods to import destination. This includes duties, taxes and customs formalities.
- FAS – Free Alongside Ship
- The seller has fulfilled his obligation when goods have been placed alongside the vessel at the port of shipment. The buyer is responsible for all costs and risks of loss or damage to the goods from that moment. The buyer is also required to clear the goods for export.
- FOB – Free on Board
- Once the goods have passed over the ship’s rail at the port of export the buyer is responsible for all costs and risks of loss or damage to the goods from that point. The seller is required to clear the goods for export.