Incoterms: A complete guide to international trade
What are Incoterms?
Incoterms, or International Commercial Terms, are a set of rules established by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international trade. These rules determine who pays for transportation and insurance, who is responsible for loading and unloading the goods, and other important issues.
Why are the Incoterms so important?
Incoterms have been instrumental in facilitating international trade by providing a common language for commercial transactions, helping to avoid confusion and disputes between parties. They also increase security by defining the point at which the risk of goods passes and help to reduce transaction costs. In short, they promote confidence between parties and foster healthy international trade.
List of Incoterms and their classification
Over the years there have been several editions of Incoterms, from the first in 1936 to the ninth edition in 2020. This latest edition came into force on 1 January 2020 and introduced significant changes, such as the addition of two new Incoterms (FCA and DPU) and the deletion of four (DAF, DEQ and DDU). It is important to note that each edition retains different regulations and terms. Below is a list of the 11 current Incoterms and their groupings, together with a brief description of each:
Group E
The seller is only responsible for making the goods available at his premises to the buyer.
Ex-Works (EXW): The seller makes the goods available at his location, and the buyer bears all risks and costs from that point onwards.
Group F
The seller is responsible for delivering the goods at the agreed delivery point, paid for by the buyer.
Free Carrier (FCA): The seller delivers the goods to the carrier nominated by the buyer at a specified place.
Free Alongside Ship (FAS): The seller delivers the goods alongside the ship at the named port of shipment.
Free on Board (FOB): The seller delivers the goods on board the ship at the named port of shipment.
Group C
The seller is responsible for arranging and paying for shipment to the main carrier, but assumes no responsibility for risk of loss or damage.
Cost and Freight (CFR): The seller delivers the goods on board the vessel and pays the freight to the named port of destination.
Cost, Insurance and Freight (CIF): Similar to CFR, but the seller also pays for the marine insurance.
Carriage Paid To (CPT): The seller delivers the goods to the carrier and pays for the carriage to the named place of destination.
Carriage and Insurance Paid To (CIP): Similar to CPT, but the seller also pays for the transport insurance.
Group D
The exporter or seller assumes responsibility for risks of loss or damage and is responsible for arranging and paying for shipment to the main carrier.
Delivery At Place (DAP): The seller delivers the goods at a named place in the country of importation, without unloading them from the means of transport.
Delivery At Place Unloaded (DPU): Similar to DAP, but the seller also unloads the goods.
Delivered Duty Paid (DDP): The seller delivers the goods at the named place in the country of importation, ready for unloading, and bears all costs and risks, including import duties.
Incoterms graphic
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To make it easier to understand which Incoterms are used for land, air and sea transports, they have been divided into multimodal and maritime:
Multimodal
- Ex-Works (EXW)
- Free Carrier
- Carriage Paid To (CPT)
- Carriage and Insurance Paid To (CIP)
- Delivery At Place (DAP)
- Delivery at Place Unloaded (DPU)
- Delivered Duty Paid (DDP)
B. Maritime
- Free Alongside Ship (FAS)
- Free On Board (FOB)
- Cost and Freight (CFR)
- Cost, Insurance, and Freight (CIF)
Conclusion INCOTERMS
International trade offers great opportunities for business, but it can also present challenges if the right tools are not in place. Proper understanding and application of Incoterms are crucial to avoid delays, damage to goods and costly legal disputes.
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