What are Incoterms?

Incoterms (International Commercial Terms) is an abbreviation for International Commercial Terms that apply in global trade and set out the rights and obligations of the seller and the buyer. Its main purpose is to standardize and optimize the terms of international sales contracts to bring them into conformity with the laws of all contracting parties. The International Chamber of Commerce published first edition of Incoterms rules in 1936. On January 1, 2020 new Incoterms-2020 rules had entered into effect which were developed to make them as simple as possible, and, furthermore, remove unnecessary delivery bases which can cause confusion and misunderstanding in the use of trade terms, in order to clarify all delivery terms for exporters and importers all over the world more clearly.

Incoterms can be divided into four categories:

• Category E – Place of shipment. Self-delivery from the supplier's warehouse.
• Category F – The main carriage is paid by the buyer.
• Category C – The main carriage is paid by the seller.
• Category D – Delivery.

Contents of Incoterms 2020

EXW (Ex Works) – The term “ex works” means that the seller fulfils his obligation to deliver when he places the goods at the disposal of the buyer at his premises or another indicated place (for example: plant, factory, warehouse, etc.). The seller is not responsible for the loading the goods on the vehicle or for the customs clearance of the exported goods.

Seller must provide goods of proper quality, with the provision of packaging that guarantees safety during transportation, with the appropriate requirements for labelling and packaging on the part of the Buyer, and must provide access to the cargo on its territory and the transfer of all documents for export.

FOB (Free on Board) – The term “free on board” means that the seller has made delivery when the goods have passed over the ship's rail at the indicated port of shipment.

The seller must clear the goods for export. This term can be used only when the goods are to be delivered by sea or inland waterway transport. If the parties do not intend to deliver the goods across the ship's rail, the FCA term should be used.

FCA (Free Carrier) – The term “free carrier” means that the seller will deliver the cleared goods to the carrier indicated by the buyer to the specified place.

The seller has to fulfil the export customs clearance, then the buyer must provide the seller with the details of the vehicle that will provide shipment of the goods from the seller’s country, whether by road, rail, air or sea. The seller should know from the buyer the name and contact details of the carrier, such as the truck registration plate, wagon number, flight number or vessel details, so that he can correctly complete the export declaration and other necessary transport documents. The seller must bear all costs of customs formalities payable on export.

FAS (Free Alongside Ship) – The term “free alongside ship” means that the seller is deemed to have fulfilled his obligation to deliver when the goods are placed alongside the buyer's nominated ship at the agreed port of shipment. The seller must clear the goods for export. This term can be used only for sea or river transport.

The seller has no obligation to load the products on board the ship. He is only obliged to lighter or deliver the goods in a special vessel to the ship to the transport company carrying out the transport. The risk of loss or damage to the goods passes when the goods are placed alongside the ship, and from that moment the buyer shall bear all costs.

CFR (Cost and Freight) – The term “cost and freight” means that the seller pays for the delivery of the goods to the port, loading and freight of the ship, and covers all costs of customs formalities to be paid at export. The buyer pays for insurance of the goods. CFR terms of delivery are only used when the goods are transported by sea or river.

The seller must pay the costs and freight necessary to bring the goods to the named port of destination, but the risk of loss or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer.

CIF (Cost, Insurance and Freight) – The term “cost, insurance and freight” means that the seller has made delivery when the goods are loaded on a vehicle at the port of shipment, and the selling price includes the cost of goods, transportation costs, and the cost of insurance in transit. CIF terms of delivery are only used when the goods are shipped by sea or river transport.

The seller must bear all costs of customs formalities payable on export, as well as arrange and pay for sea transport to the port of destination and insure the cargo against maritime risks..

CPT (Carriage paid to) – The term “carriage paid to” means that the seller must pay the costs of transporting the goods to the indicated destination. This means that the buyer bears all risks of loss of or damage to the goods, as well as other costs, after the goods have been handed over to the carrier. The term CPT applies to all modes of transport, including multimodal transport.

CIP (Carriage and Insurance paid to) –– The term “carriage and insurance paid to” means that the seller will deliver the exported goods to a specific location and hand them over to the carrier. The seller is responsible for the costs of loading the goods, and their transporting to destination point. The term CIP applies to all modes of transport, including multimodal transport.

The seller must cover all costs of customs formalities payable upon export of the goods and must arrange and pay for the costs of transport of the goods to the indicated place of destination and must arrange for transport insurance against the risks of loss of or damage to the goods.

DAP (Delivered at place) – The term “delivered at place” means that the seller has fulfilled his obligation to deliver when he delivers the goods to the buyer, released under the customs export regime and ready for unloading from a vehicle arriving at the specified destination. The term DAP applies to all modes of transport, including multimodal transport.

The seller must bear all costs and risks involved in transporting the goods to the indicated place of destination, except for the payment of import duties and customs clearance in the country of import. The buyer pays for the import duties and charges and is responsible for customs clearance and unloading at the place of receipt. The seller has no obligations towards the buyer on cargo insurance. However, upon the buyer’s request related to his risk, the seller must provide the buyer with the necessary information on obtaining insurance at his own expense

DPU (Delivered at Named Place Unload) – The term “delivered at named place, unloaded” means that the seller is considered as having fulfilled his delivery obligation when the goods released under the export customs regime are unloaded from the arriving transport and placed at the disposal of the buyer at the indicated destination. The term DPU applies to all modes of transport, including multimodal transport. The DPU Incoterms 2020 rule replaced the DAT Incoterms 2010 rule and expanded the delivery location from the terminal to any

The seller must bear all costs and risks involved in transportation of the goods to the indicated destination and unloading them from the vehicle.

DDP (Delivered, Duty Paid) – The term “delivered, duty paid” means that the seller provides delivering when the goods, cleared for import, are placed at the buyer’s disposal on the arriving means of transport, ready for unloading at the indicated destination. The term DDP applies to all modes of transport, including multimodal transport.

The seller must pay all costs relating to the delivery of the goods at destination and must carry out the customs formalities necessary not only for export but also for import, pay any export and import duties and carry out all customs formalities. The seller has no obligations towards the buyer on cargo insurance. However, upon the buyer’s request related to his risk, the seller must provide the buyer with the necessary information on obtaining insurance at his own expense.

Responsibilities of the Parties according to Incoterms-2020

Source: International Chamber of Commerce

Official website: https://iccwbo.org