Let’s start from the beginning
The word ¨Incoterms¨ is an acronym that comes from ¨International Commercial Terms¨. Incoterms are a group of commercial terms (3 letters each) that are used in international transactions to clarify costs and determine the commercial clauses included in a sales contract.
These terms were created in 1936 by the International Chamber of Commerce (CCI) under the name of Incoterms 1936. Although over time they have been modified until they reach the current Incoterms 2010 , which entered into force on January 1st, 2011.
In 2020 other Incoterms will come into force . However, this update does not mean that all Incoterms belonging to previous versions have stopped being used. Therefore, it is necessary to specify the Incoterms next to the year of the corresponding version so as not to be confused.
Description of the Incoterms 2010:
The 11 types of Incoterms 2010 are presented in 2 groups:
-Apply to Any Mode of Transport:
EXW, FCA, CPT, CIP, DAT, DAP, DDP
– Apply to Sea and Inland Waterway Transport:
FAS, FOB, CFR, CIF
- Group E – Direct outbound delivery
Means the seller’s only responsibility is to make the goods available at the seller’s premises, i.e., the works or factory. The seller is not responsible for loading the goods on the vehicle provided by the buyer unless otherwise agreed. The buyer bears the full costs and risk involved in bringing the goods from there to the desired destination. Ex – Works represents the minimum obligation of the seller.
- Group F – Indirect delivery, without payment of the main transport
This term has been designed to meet the requirements of multi-modal transport, such as container or roll-on, roll-off traffic by trailers and ferries. The seller fulfils his/her obligations when the goods are delivered to the custody of the carrier at a named point. If no precise point can be named at the time of the contract of sale, the parties should refer to the place where the carrier should take the goods into its charge. The risk of loss or damage to the goods is transferred from seller to buyer at that time.
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 . This term is typically used for heavy-lift or bulk cargo.
The goods are placed on board by the seller at a port of shipment named in the sales agreement. The risk of loss or damage of the goods is transferred to the buyer when the goods pass the ship’s rail (i.e., off the dock and placed on the ship). The seller pays the cost of loading the goods. The Incoterm FOB is one of the most widely used in international trade. It must be used for general cargo (drums, coils, containers, etc.) of goods but it is no usable for bulk. Only used for transport by ship.
- Group C – Indirect delivery, with payment of the main shipment
Requires the seller to pay the costs and freight necessary to bring the goods to the named destination, but the risk of loss or damage to the goods, as well as any cost increases, are transferred from the seller to the buyer when the goods pass the ship’s rail in the port of shipment. Insurance is the buyer’s responsibility.
The seller bears all costs, including main transportation and insurance, until the goods arrive at the port of destination. Although the insurance is contracted by the seller, the beneficiary of the insurance is the buyer. As in the previous Incoterm, CFR, the risk is transferred to the buyer at the moment the merchandise is loaded on the ship, in the country of origin. The Incoterm CIF is one of the most commonly used in international trade because the conditions of a CIF price are those that mark the customs value of a product that is imported. It should be used for general or conventional cargo. The Incoterm CIF is exclusive in the maritime environment. It is important that the contract specifies the port of shipment (not just the port of destination) as where the exporter transmits the risk to the importer. It is also convenient to specify the delivery point, within the agreed port of destination, as the exporter bears the costs up to that point.
The seller bears all costs, including the main transport, until the goods arrive at the agreed point in the country of destination. However, the risk is transferred to the buyer upon delivery of the goods to the carrier within the country of origin. It can be used with any mode of transport including multimodal transport. The place/delivery point of the goods does not coincide with the destination. It is advisable to specify both points as much as possible in the sales contract, since the sharing of costs and the transfer of risks between exporter and importer do not take place in the same place. The obligation of the exporter to deliver the goods ends with their delivery to the carrier and NOT with the arrival of the goods at the destination. However, the exporter bears the costs of the main transport.
This term is the same as CPT but with the additional requirement that the seller has to procure transport insurance against the risk of loss or damage to the goods during the carriage. The seller contracts with the insurer and pays the insurance premium.
- Group D – Direct delivery on arrival
The seller undertakes all costs, including: main transportation and insurance (which is not mandatory), until the goods are unloaded at the agreed terminal. He/she also undertakes the risks until that time. If the exporter and the importer wish that the costs and risks are associated with the transport and handling of the goods from the terminal to another location, they have to opt for the terms DAP or DDP. The terminal concept is quite broad and includes land and sea terminals, ports, airports, free zones, etc. Therefore it is important that the place of delivery of the goods is clearly specified and that this place coincides with that specified in the transport contract. It is used for all types of transport.
This term means that the seller pays all the costs of transportation (export fees, carriage, insurance, and destination port charges) up to the delivery of the goods to the final destination. The buyer is responsible to pay only the import duty/taxes/customs costs. The buyer is also responsible to unload the goods from the vehicle at the final destination. The big difference between DAP and DAT is that with DAP the seller is responsible for the final leg of the journey and the buyer is responsible for the final unloading of the goods. This term applies to any mode of transport.
Represents the seller’s maximum obligation. The term “DDP” is generally followed by words indicating the buyer’s premises. It means that the seller bears all risks and all costs until the goods are delivered. This term can be used irrespectively of the mode of transport. If the parties wish to make clear that the seller is not responsible for certain costs, additional word should be added.