Incoterms®

The Incoterms® rules were drafted by a select international group of ICC member experts,
in consultation with the broader global ICC membership through the network of ICC
national committees.

International Chamber of Commerce (ICC) is non-governmental organization which

represents business community. It is independent self-governing non-profit international
organization, which unites chambers of commerce all over the world, business
organizations and associations for developing international trade standards, protection of
business interests and resolve commercial disputes 1.

"Incoterms" is a registered trademark of the ICC.

Incoterms® ,International Commercial Terms, are the International Rules for the
Interpretation of Trade Terms2. They are revised every 10 years.

Incoterms 2010 and 2020 available from:

https://iccwbo.org/publication/incoterms-rules-2010/

https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-2020/

https://www.logistiikanmaailma.fi/en/contracts/terms-of-delivery/incoterms-2020/

The Incoterms® rules have allocated obligations between the buyer and seller.

Rules formulated in a dictionary format that provide unambiguous interpretations of the

most widely used trade terms in the foreign trade, first of all, regarding franco (“free”) – the
place where responsibility and risks are transferred from seller to buyer.

Basic principles:

  -  allocation of transportation costs for the delivery of goods between the seller and the
buyer that is, what costs and up to which point/moment seller bears, and what costs and
from which point/moment - the buyer bears the costs.

1
https://iccwbo.org/about-us/
2
Do not use “Incoterms” without the initial letter as a capital letter. Do not use “Incoterm”
(without the final “s”). An individual term from the Incoterms® rules should be referred to
as an Incoterms® rule, and never as an “Incoterm”. (Incoterms® 2010 by the International Chamber
of Commerce (ICC). ICC rules for the use of domestic and international trade terms, p.241. )

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    - the identification of the moment/point when the risk of damage, loss or accidental loss
of cargo/goods passes to the buyer.

-    the identification of the moment of the actual delivery when the seller places the goods
at the disposal of the buyer (or its representative, — for example, the carrier), and,
therefore, the seller executed its obligations regarding delivery dates. Delivery concept has
multiple meanings in trade and practice, but in the Incoterms® rules, it is used to indicate
where the risk of loss or damage to the goods passes from the seller to the buyer.

The structure of terms is formed in the sequence of increasing the seller’s obligations in
relation to the terms of delivery. The first letter indicates the point where obligations and
risks are transferred from seller to buyer.

Group E - shipment, transfer of obligations - at the place of departure. Seller delivers

when it places the goods at the disposal of the buyer at the sellers premises or at
another named place (i.e. factory/works/ warehouse, etc). The seller does not perform
the customs clearance; The seller is not responsible for loading the goods onto the
vehicle; EXW, Ex Works.

EXW represents the minimum obligation for the seller.

    Group F - main carriage unpaid, the transfer of responsibilities at the departure

terminals for the main carriage. The seller has to give goods at the disposal of the
carrier. The buyer hires the carrier by himself.

FCA, Free carrier: export duties paid by the seller. Seller delivers the goods to the
carrier or another person nominated by the buyer at the seller’s premises or another
named place. Risk passes to the buyer at that point.

For example: FCA Kuopio, Microkatu 1.

The seller has no obligations to the buyer to make a contract of carriage and/or
contract of insurance.

FOB, Free On Board (the goods are loaded on the buyer’s ship, the seller pays for the
transloading). For example, “Free on Board” means that the seller delivers the goods

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on board the vessel nominated by the buyer at the named port of shipment. The risk of
loss of or damage to the goods passes when the goods are on board the vessel, and
the buyer bears all costs from that moment onwards. FOB requires the seller to clear
the goods for export, where applicable. However, the seller has no obligation to clear
the goods for import, pay any import duty or carry out any import customs formalities.

For example: FOB Port of Hamburg, “Princess Maria” vessel.

FAS, Free Alongside Ship: handling and loading paid by the buyer. Seller delivers
when the goods are placed alongside the vessel (e.g., on a quay or a barge)
nominated by the buyer at the named port of shipment. The risk of loss of or damage to
the goods passes when the goods are alongside the ship, and the buyer bears all costs
from that moment onwards.

    Group C - the main carriage paid by the seller, the transfer of responsibilities - at the
arrival terminals for the main carriage. The seller is obliged to conclude a transportation
contract, but without acceptance of the risk of accidental loss of or damage to the
goods.

CFR, Cost and Freight: the goods are delivered to the destination port specified in the
contract; the main carriage insurance, unloading and transloading are paid by the
buyer.

CIF, Cost, Insurance and Freight: the same as CFR, but the seller insures the main
carriage,

CPT, CIP.

    Group D - arrival. The seller bears all shipping costs and accepts all risks until the
moment when goods are delivered to the country of destination.

DAP, Delivered at Place: delivery to the destination specified in the contract, import
duties and local taxes are paid by the buyer. Delivery under DAP happens before
unloading. Under DAP the seller does not unload the goods, under DPU, seller does
unload the goods.

DPU, Delivered at Place Unloaded

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 DDP, Delivered Duty Paid: goods are delivered to the destination specified in the
contract, cleared of all customs duties and risks by seller. Seller delivers when the
goods are placed at the disposal of the buyer on the arriving means of transport ready
for unloading at the named place of destination. The seller bears all risks involved in
bringing the goods to the named place.

Four Incoterms rules are applicable only for sea and inland waterway transport (FAS,
FOB, CFR, CIF), other rules are for any modes of transport.

Under Incoterms® rules CPT, CIP, CFR, CIF, DAP, and DDP, the seller must make
arrangements for the carriage of the goods to the agreed destination. While the freight is
paid by the seller, it is actually paid for by the buyer as freight costs are normally included
by the seller in the total selling price.

Matters beyond Incoterms® rules:

- Passing the title of goods (ownership transfer) from the seller to the buyer. This
moment should be settled separately in the contract, it is desirable that moment of
passing the title of goods is coincided with the transfer of the risk of damage, loss of
goods.

- the consequences of the failure to meet an obligation by parties (default on

obligations), including the grounds for exemption from responsibility. This questions
are governed by the contract, by the applicable law or/and by the Vienna
Convention, 1980.

- Liability of the seller for any lack of conformity of the goods. Conformity of the goods
means that goods are of the quantity, quality and description required by the
contract and which are contained or packaged in the manner required by the
contract.

- the time, place, method or currency of payment of the price ;

etc.