FAQ INCOTERMS

The Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law. They are widely used in International commercial transactions or procurement processes as the use in international sales is encouraged by trade councils, courts and international lawyers. A series of three-letter trade terms related to common contractual 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 inform sales contract defining respective obligations, costs, and risks involved in the delivery of goods from the seller to the buyer. However, it does not constitute contract or govern law. Also it does not define where titles transfer and does not address the price payable, currency or credit items.

The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide.

The first work published by the ICC on international trade terms was issued in 1923, with the first edition known as Incoterms published in 1936. the Incoterms rules were amended in 1953, 1967, 1976, 1980, 1990, and 2000, with the eighth version— Incoterms 2010 — having been published on January 1, 2011. The ICC have begun consultations on a new revision of Incoterms, to be called Incoterms 2020. "Incoterms" is a registered trademark of the ICC.

National Incoterms chambers.

Incoterms 2010

Incoterms 2011 is the eighth set of pre-defined international contract terms published by the International Chamber of Commerce, with the first set having been published in 1936. Incoterms 2010 defines 11 rules, down from the 13 rules defined by Incoterms 2000. Four rules of the 2000 version ("Delivered at Frontier"; DAF, "Delivered Ex Ship"; DES, "Delivered Ex Quay"; DEQ, "Delivered Duty Unpaid"; DDU) were removed, and are replaced by two new rules ("Delivered at Terminal"; DAT, "Delivered at Place"; DAP) in the 2010 rules.

In the prior version, the rules were divided into four categories, but the 11 pre-defined terms of Incoterms 2010 are subdivided into two categories based only on method of delivery. The larger group of seven rules may be used regardless of the method of transport, with the smaller group of four being applicable only to sales that solely involve transportation by water where the condition of the goods can be verified at the point of loading on board ship. They are therefore not to be used for containerized freight, other combined transport methods, or for transport by road, air or rail.

Incoterms 2010 also formally defined delivery. Before, the term has been defined informally but it is now defined as the point in the transaction where "the risk of loss or damage [to the goods] passes from the seller to the buyer."

Incoterms in government regulations

In some jurisdictions, the duty costs of the goods may be calculated against a specific Incoterm (for example in India, duty is calculated against the CIF value of the goods, and in South Africa the duty is calculated against the FOB value of the goods). Because of this it is common for contracts for exports to these countries to use these Incoterms, even when they are not suitable for the chosen mode of transport. If this is the case then great care must be exercised to ensure that the points at which costs and risks pass are clarified with the customer.

Defined terms in Incoterms

• Delivery: The point in the transaction where the risk of loss or damage to the goods is transferred from the seller to the buyer
• Arrival: The point named in the Incoterm to which carriage has been paid
• Free: Seller has an obligation to deliver the goods to a named place for transfer to a carrier
• Carrier: Any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes
• Freight forwarder: A firm that makes or assists in the making of shipping arrangements;
• Terminal: Any place, whether covered or not, such as a dock, warehouse, container yard or road, rail or air cargo terminal
• To clear for export: To file Shipper’s Export Declaration and get export permit

Variation of Incoterms

Parties adopting Incoterms should be wary about their intention and variations. The desire of the parties should be expressed clearly and casual adoption should be refrained. Also, making additions or variations to the meaning of a certain term should be carefully done as parties' failure to use any trade term at all can produce unexpected results.

Rules for any mode of transport

• EXW – Ex Works (named place of delivery)
• FCA – Free Carrier (named place of delivery)
• CPT – Carriage Paid To (named place of destination)
• CIP – Carriage and Insurance Paid to (named place of destination)
• DAT – Delivered At Terminal (named terminal at port or place of destination)
• DAP – Delivered At Place (named place of destination)
• DDP – Delivered Duty Paid (named place of destination)

Rules for sea and inland waterway transport

• FAS – Free Alongside Ship (named port of shipment)
• FOB – Free on Board (named port of shipment)
• CFR – Cost and Freight (named port of destination)
• CIF – Cost, Insurance & Freight (named port of destination)

Previous terms from Incoterms 2000 eliminated from Incoterms 2010

While these terms do not feature in the current version of Incoterms it is possible that they may be seen in sales order contracts. Care must be taken to ensure that both parties agree on their obligations in this case.

• DAF – Delivered at Frontier (named place of delivery)
• DES – Delivered Ex Ship
• DEQ – Delivered Ex Quay (named port of delivery)
• DDU – Delivered Duty Unpaid (named place of destination)

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