Section H
Incoterms®
Incoterms are: the ICC (International Chamber of Commerce) official rules for the interpretation of trade terms applying to the contract of sale. The latest terms published in September 2010 came into force 1 January 2011. In the introduction to the earlier 2000 edition of this excellent booklet, it states: ‘The purpose of Incoterms is to provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Thus, the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree.’
Incoterms tend to be revised and reissued every ten years, reflecting the problems that buyers and sellers have experienced over the preceding period. Older terms can be used provided the purchase contract clearly states the Incoterms year of issue.
The eleven8 2010 rules are presented in two distinct groups. Group 1 is for any mode(s) of transport, including maritime transport. Group 2 is for sea and inland waterway transport only.
1 Rules for Any Mode or Modes of Transport
| EXW | Ex Works | |
| FCA | Free Carrier | Goods cleared for export |
| CPT | Carriage Paid to | FCA + Contract for carriage paid |
| CIP | Carriage and Insurance Paid to | CPT + Cost of insurance |
| DAP | Delivered at Place | All costs and risks paid for |
| DAT | Delivered at Terminal | DAP + Cost of unloading at normal point |
| DDP | Delivered Duty Paid | DAP + Paying clearance and duty |
1.1
This first group of seven rules can be used irrespective of the mode of transport selected and irrespective of whether one or more than one mode of transport is used.
1.2
These rules can be used even when there is no maritime transport at all. Nevertheless, it is important to remember that these rules can be used in cases where a ship is used for part of the carriage.
2 Rules for Sea and Inland Waterway Transport
| FAS | Free Alongside Ship | |
| FOB | Free on Board | |
| CFR | Cost and Freight | FOB + Contract of carriage to named destination |
| CIF | Cost Insurance and Freight | CFR + Payment of insurance |
2.1
In the second group of four rules, the point of delivery and the place to which the goods are carried to, for the buyer, are both ports. Hence the label sea and inland waterway rules.
2.2
Under the last three Incoterms rules, all mention of the ship's rail as the point of delivery (Incoterms 2000 rules) has been omitted in preference for the goods being delivered when they are on board the vessel. This more closely reflects modern commercial reality. It avoids what is considered as the rather dated image of the risk swinging to and fro across an imaginary perpendicular line above the ship's rail.
3 Transfer of Risks and Obligations
3.1
EXW represents the seller's minimum obligation to make the goods available at the seller's premises.
3.2
With the ‘F’ terms, the seller has extended obligations to hand over goods for carriage free of risk and expense to a carrier nominated by the buyer (FCA, FAS, and FOB).
3.3
With the ‘C’ terms, the seller has extended obligations to hand over goods for carriage free of risk and expense to a carrier chosen and paid for by the seller (CFR and CPT), together with insurance risks in transit (CIF and CIP).
With the latter two terms, it should be noted that risk passes when the goods are on a vessel, even though the seller pays the cost and insurance to the named port of destination. That is, the seller must bear costs even after the critical point for the division of risk has happened.
3.4
DAT, DAP, and DDP represent the seller's maximum obligation to deliver at the destination.
4 Sellers' and Buyers' Detailed Obligations
Each term is defined, and the seller's obligations are listed under a series of consistent paragraphs A1 to A10
4.1
| A1 | General obligations |
| A2 | Licences, authorizations, and formalities |
| A3 | Contracts of carriage and insurance |
| A4 | Delivery |
| A5 | Transfer of risks |
| A6 | Allocation of costs |
| A7 | Notice to the buyer |
| A8 | Delivery documents |
| A9 | Checking, packaging, inspection, and marking |
| A10 | Assistance with information and related costs |
4.2
The above terms are matched on a facing page, listing the buyer's obligations in similar paragraphs B1 to B10.
| B1 | Payment of the price |
| B2 | as above |
| B3 | as above |
| B4 | Taking delivery |
| B5 | as above |
| B6 | as above |
| B7 | Notice to the seller |
| B8 | as above |
| B9 | Inspection of the goods |
| B10 | as above |
5 Additional Information
5.1
Be wary of U.S. suppliers, since they signed up to Incoterms relatively late in life. Some suppliers may still believe that FOB means on a truck in the middle of Texas! Consequently, always be pedantic and quote ‘Incoterms 2010,’ depending on the version you want to use or whatever is the latest issue date.
5.2
If you need more information borrow the Incoterms book from your purchasing department.