INCOTERMS The Incoterms rules describe mainly the Tasks, Costs and Risks involved in the delivery of goods

from sellers to buyers. The rules do not constitute primary contract of sale, but should be incorporated in the sale contracts.

The Incoterms

rules explain a set of three-letter trade terms reflecting business-

to-business practice in contracts for the sale of goods. The term Incoterms stands for International Commercial Terms published by International Chamber of Commerce. The first version of Incoterms rules was introduced in 1936 and thereafter many revision took place depending on the change in trade practices. The latest version is Incoterms 2010 with effect from 1.1.2011. This globally accepted contractual standard has been regularly updated to keep pace with the development of global trade, continued spread of customs-free zones, the increased use of electronic communications in business transactions, heightened concern about security of movement of goods and changes in transport practices. Incoterms 2010 is also the first version of the Incoterms rules to make all references to buyers and sellers gender-neutral. The Incoterms rules describe mainly the Tasks, Costs and Risks involved in the delivery of goods from sellers to buyers. The rules do not constitute primary contract of sale, but should be incorporated in the sale contracts.

Classification of Incoterms 2010 Rules

Incoterms is a registered trademark of the International Chamber of Commerce. 1 Incoterms

The 11 Incoterms are presented in two distinct classes: RULES FOR ANY MODE OR MODES OF TRANSPORT 1. Ex works (EXW) 2. Free Carrier (FCA) 3. Carriage Paid to (CPT) 4. Carriage and Insurance Paid to (CIP) 5. Delivered at Terminal (DAT) 6. Delivered at Place (DAP) 7. Delivered Duty Paid (DDP) RULES FOR SEA AND INLAND WATERWAY TRANSPORT 1. Free Alongside Ship (FAS) 2. Free on Board (FOB) 3. Cost and Freight (CFR) 4. Cost, Insurance and Freight (CIF) The first seven class includes the rules that can be used irrespective of the mode of transport selected and irrespective whether one or more than one mode of transport is employed. They can be used even if there is no maritime transport at all. It is import to remember, however, that these rules can be used in cases where a ship is used for part of the carriage. In the second class of Incoterms rules, the point of delivery and the place to which the goods are carried to the buyers are both ports, hence the label sea and inland waterway. The sellers and buyers obligations are presented in mirror fashion reflecting under Column A sellers obligations and under Column B buyers obligations. These obligations can be carried out personally by the seller or the buyer or sometimes, subject to terms in the contract or the applicable law, through intermediaries such as
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carriers, freight forwarders or other persons nominated by the seller or the buyer for a specific purpose. Brief Explanation of various Rules:
1. Ex Works(EXW): Ex works means the seller delivers the goods when it

places the goods at the disposal of the buyer at the sellers premises or at another named place (i.e. works, factory, warehouse etc.). The seller need not to load the goods on any collecting vehicle, nor does it need to clear the goods of export. The parties are advised to specify as clearly as possible the point within the named place of delivery, as the costs and risks to that point are for the account of seller. The buyer bears all the costs and risks involved in taking the goods from the agreed point, if any, at the named place of delivery. EXW represents the minimum obligation for the seller.
2. Free Carrier(FCA): Free Carrier means the seller delivers the goods to the

carrier or another person nominated by the buyer at the sellers premises or another named place. The parties are advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.

FCA requires the seller to clear the goods for export, where applicable.

3. Carriage Paid to(CPT): Carriage paid to means that the seller delivers the

goods to the carrier or another person nominated by the seller at an agreed place and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination. This rules has two critical points, because the risk passes and the costs are transferred at different places. The parties are well advised to identify as precisely as possible in the contract both the place of delivery, where the risk

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passes to the buyer and the named place of destination to which the seller must contract for carriage.

4. Carriage and Insurance Paid to(CIP): Carriage and Insurance Paid to

means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place and that the seller must contract from and pay the costs of carriage necessary to bring the goods to the named place of destination. The seller also contracts for minimum insurance cover against the buyers risk of loss of or damage to the goods during the carriage. This rules has two critical points, because the risk passes and the costs are transferred at different places. The parties are well advised to identify as precisely as possible in the contract both the place of delivery, where the risk passes to the buyer, and the named place of destination to which the seller must contract for carriage.
5. Delivered at Terminal(DAT): Delivered at Terminal means that the seller

delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. Terminal includes any place, whether covered or not, such as quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port of or place of destination.

The rule requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, say any import duty or carry out any import customs formalities.

6. Delivered at Place(DAP): Delivered at Place means that the 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.
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The rule requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, say any import duty or carry out any import customs formalities.

7. Delivered Duty Paid(DDP): Delivered Duty Paid means that the seller

delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities. The rule represents maximum obligation for the seller.
8. Free Alongside Ship(FAS): Free Alongside Ship means that the seller

delivers when the goods are placed alongside the vessel nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passed when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.

FAS requires the seller to clear the goods for export, where applicable.

9. Free on Board(FOB): Free on Board means that the seller delivers the

goods 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.
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10. Cost and Freight(CFR): Cost and Freight means that the sellers delivers

the goods on board the vessel. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

The rule has two critical points, because the risk passes and the costs are transferred at different places. While the contract will always specify a destination port, it might not specify the port of shipment, which where the risk passes to the buyer.

11. Cost, Insurance and Freight(CIF): Cost Insurance and Freight means that

the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination. The seller also contracts for minimum Insurance cover against the buyers risk of loss of or damage to goods during the carriage.

The rule has two critical points, because the risk passes and the costs are transferred at different places. While the contract will always specify a destination port, it might not specify the port of shipment, which where the risk passes to the buyer.

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