Below we will try to provide a brief introduction and explanation to Incoterms 2010.
For further information we refer to http://www.iccwbo.org/incoterms/ where the full version of the incoterms can also be ordered.
What are incoterms?
The Incoterms rules or International Commercial terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) widely used in international commercial transactions. A series of three-letter trade terms related to common sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs and risks associated with the transportation and delivery of goods. "Incoterms" is a registered trademark of the ICC.
What are the incoterms not?
Whilst the meaning and definition of tasks, costs and risks inherent in the different terms are recognized by many governments and legal institutions, the incoterms are no substitute for a proper and clear commercial contract. Within a contract incoterms may be used to define responsibilities, risks and cost for both parties to the contract, but similarly additional stipulations may (and sometimes should) further define and in some cases even alter the responsibilities, risks and cost from the original meaning of the incoterm. In such cases the stipulations of the contract will always take precedence over the inherent meaning of the incoterm used.
Form of incoterms: incoterm (named place)
An incoterm should always be followed by as specific as possible a named place.
Shanghai is a big city. Costs involved for EXW may vary greatly on the exact location.
Hence this may give rise to contention between contracting parties.
EXW Jinxiu lu 185, Pudong new area, 200041 Shanghai China
This named place is already much more specific and no contention may arise.
Careful study and use of incoterms
The below overview of incoterms is merely a brief and shortened introduction.
We actively encourage all our customers to purchase the official incoterms from ICC and study them carefully.
For there are many misconceptions about incoterms.
To give but one common misconception:
EXW (named place)
This incoterm is often used in contracts where the seller will provide export documents and load the cargo on transport conveyance. But actually under this term, seller has no such obligation!
Therefore we often advise our customers to substitute EXW (named place) with FCA (named place), which does place responsibility for providing export documents and export custom clearance as well as loading of cargo to transport conveyance with shipper.
Here now follows a short introduction to the incoterms:
THE FOLLOWING SEVEN INCOTERMS MAY BE USED FOR ANY MODE OF TRANSPORT
EXW – Ex Works (named place of delivery)
The seller makes the goods available at its premises. This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included. EXW means that a seller has the goods ready for collection at his premises (works, factory, warehouse, plant) on the date agreed upon. The buyer pays all transportation costs and also bears the risks for bringing the goods to their final destination. The seller doesn't load the goods on collecting vehicles and doesn't clear them for export. If the seller does load the good, he does so at buyer's risk and cost. If parties wish seller to be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale.
FCA – Free Carrier (named place of delivery)
The seller hands over the goods, cleared for export, into the disposal of the first carrier (named by the buyer) at the named place. The seller pays for carriage to the named point of delivery, and risk passes when the goods are handed over to the first carrier. If the place of delivery is the seller premises, then seller has the obligation to load cargo to carrier transport conveyance at seller risk and cost.
CPT - Carriage Paid To (named place of destination)
The seller pays for carriage. Risk transfers to buyer upon handing goods over to the first carrier.
CIP – Carriage and Insurance Paid to (named place of destination)
The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.
DAT – Delivered At Terminal (named terminal at port or place of destination)
Seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.
DAP – Delivered At Place (named place of destination)
Seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.
DDP – Delivered Duty Paid (named place of destination)
Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes. This term places the maximum obligations on the seller and minimum obligations on the buyer.
THE FOLLOWING FOUR RULES USED FOR INTERNATIONAL WATER TRANSPORT ONLY
FAS – Free Alongside Ship (named port of shipment)
The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. Suitable only for maritime transport but NOT for multimodal sea transport in containers (see Incoterms 2010, ICC publication 715). This term is typically used for heavy-lift or bulk cargo.
FOB – Free On Board (named port of shipment)
The seller must load themselves the goods on board the vessel nominated by the buyer. Cost and risk are divided when the goods are actually on board of the vessel (this rule is new!). The seller must clear the goods for export. The term is applicable for maritime and inland waterway transport only but NOT for multimodal sea transport in containers (see Incoterms 2010, ICC publication 715). The buyer must instruct the seller the details of the vessel and the port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder. This term has been greatly misused over the last three decades ever since Incoterms 1980 explained that FCA should be used for container shipments.
CFR – Cost and FReight (named port of destination)
Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel (this rule is new!). Maritime transport only and Insurance for the goods is NOT included. This term is formerly known as CNF (C&F).
CIF – Cost Insurance and Freight (named port of destination)
Exactly the same as CFR except that the seller must in addition procure and pay for the insurance. Maritime transport only.