Incoterms (International Commercial Terms)

Incoterms (International Commercial Terms) are a set of internationally recognized rules that define the responsibilities of buyers and sellers in international trade. They specify how costs, risks, and responsibilities are divided between the parties involved in the shipping of goods.

The International Chamber of Commerce (ICC) developed Incoterms, which are updated periodically. The most recent version, Incoterms 2020, outlines 11 terms. These terms are often used in contracts for the sale of goods to avoid misunderstandings and disputes between parties in different countries.

Here’s a breakdown of the 11 Incoterms 2020:

1. EXW (Ex Works)

• Seller’s responsibility: The seller makes the goods available for pickup at their premises or another agreed location (factory, warehouse, etc.).
• Buyer’s responsibility: The buyer assumes all responsibilities from the seller’s location, including shipping, customs clearance, and delivery to the destination.
• Risk: Risk passes to the buyer as soon as the goods are made available for pickup.

2. FCA (Free Carrier)

• Seller’s responsibility: The seller delivers the goods to a carrier or another party nominated by the buyer at an agreed location.
• Buyer’s responsibility: The buyer assumes responsibility for the goods once they are delivered to the carrier and is responsible for the transport from there.
• Risk: Risk passes to the buyer once the seller hands over the goods to the carrier.

3. FAS (Free Alongside Ship)

• Seller’s responsibility: The seller must deliver the goods alongside the ship at the port of shipment.
• Buyer’s responsibility: The buyer assumes responsibility from the point the goods are placed alongside the vessel. The buyer arranges and pays for shipping, insurance, and customs duties.
• Risk: Risk passes to the buyer when the goods are alongside the ship.

4. FOB (Free On Board)

• Seller’s responsibility: The seller delivers the goods on board the ship at the port of shipment.
• Buyer’s responsibility: The buyer assumes responsibility from the moment the goods are on board the ship and handles further transportation and costs.
• Risk: Risk passes to the buyer when the goods are loaded onto the ship.

5. CFR (Cost and Freight)

• Seller’s responsibility: The seller is responsible for arranging and paying for the transport of goods to the destination port.
• Buyer’s responsibility: The buyer assumes risk once the goods are on the ship, although the seller pays for transportation.
• Risk: Risk passes to the buyer when the goods are on board the ship.

6. CIF (Cost, Insurance, and Freight)

• Seller’s responsibility: The seller arranges and pays for the cost of transportation and insurance to the destination port.
• Buyer’s responsibility: The buyer assumes risk once the goods are on board the ship, but the seller covers the cost of insurance.
• Risk: Risk passes to the buyer when the goods are loaded onto the ship.

7. CPT (Carriage Paid To)

• Seller’s responsibility: The seller pays for the transport of goods to the destination, but the risk passes once the goods are handed over to the carrier.
• Buyer’s responsibility: The buyer assumes risk from the moment the goods are delivered to the carrier but does not pay for the main transport costs.
• Risk: Risk passes to the buyer once the goods are handed over to the carrier.

8. CIP (Carriage and Insurance Paid To)

• Seller’s responsibility: The seller pays for transportation and insurance to the destination.
• Buyer’s responsibility: The buyer assumes risk once the goods are handed over to the carrier, although the seller arranges insurance.
• Risk: Risk passes to the buyer when the goods are delivered to the carrier

9. DPU (Delivered at Place Unloaded)

• Seller’s responsibility: The seller delivers the goods to a specified destination and unloads them there.
• Buyer’s responsibility: The buyer assumes responsibility after the goods are unloaded at the destination.
• Risk: Risk passes to the buyer after the goods are unloaded at the destination.

10. DAP (Delivered at Place)

• Seller’s responsibility: The seller delivers the goods to a specified place (usually the buyer’s location) and is responsible for all costs until delivery.
• Buyer’s responsibility: The buyer assumes responsibility for unloading and any import duties and taxes.
• Risk: Risk passes to the buyer when the goods are made available at the agreed destination.

11. DDP (Delivered Duty Paid)

• Seller’s responsibility: The seller is responsible for delivering the goods to the buyer’s location, including paying all costs, such as customs duties, taxes, and delivery fees.
• Buyer’s responsibility: The buyer only receives the goods and takes possession.
• Risk: The seller assumes all risks and responsibilities until the goods are delivered to the buyer.

When choosing an Incoterm, both parties (buyer and seller) should consider factors such as:

• The level of control they wish to maintain over shipping and logistics.
• The financial and risk burden they are willing to assume.
• Their experience with international trade practices.

Each Incoterm is suited to different types of transactions and needs, so careful selection is crucial to ensure smooth trade and avoid disputes.