What are Incoterms? Definition
International commercial terms, or Incoterms for short, are a set of rules published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international trade. They were first established in 1936 and revised in 1953, 1990, and most recently in 2010. There are 11 Incoterms in total, which we will explore in more depth below. But first, let’s answer the question: what are Incoterms?
Incoterms are a series of international commercial terms published by the International Chamber of Commerce (ICC). They are used worldwide to define the responsibilities of sellers and buyers for the delivery of goods.
There are 11 Incoterms in total, divided into 4 categories:
-E: for EXW (Ex Works), FCA (Free Carrier), FAS (Free Alongside Ship), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), DAT (Delivered At Terminal) and DAP (Delivered At Place);
-F: for FOB (Free On Board);
-D: for DDP (Delivered Duty Paid).
Incoterms are a set of international rules that govern the sale and transport of goods. They define who is responsible for the costs and risks associated with the transport of goods from the point of sale to the point of delivery.
Incoterms 2020 is the most recent version of these rules, which were first published in 1936 by the International Chamber of Commerce (ICC). The ICC updates the Incoterms every ten years to keep pace with changes in international trade.
The eight Incoterms 2020 rules are:
EXW (Ex Works): The seller makes the goods available at their premises. The buyer bears all costs and risks associated with taking possession of the goods.
FCA (Free Carrier): The seller delivers the goods to the carrier nominated by the buyer at their premises, or at another named place. The buyer bears all costs and risks associated with taking delivery from there.
CPT (Carriage Paid To): The seller delivers the goods to the carrier nominated by the buyer, but pays for transportation to the named destination point. The buyer takes responsibility for the goods from there.
CIP (Carriage and Insurance Paid To): Like CPT, but with insurance included.
DAT (Delivered At Terminal): The seller delivers cargo to an agreed terminal at port or airport, making it available for unloading by the buyer. From here on, responsibility and cost transfer to buyer.
DDP (Delivered Duty
What are the differences between Incoterms 2010 and 2020?
The biggest changes between Incoterms 2010 and 2020 are in the rules for transport by sea. The new version introduces the FOB terms FAS (Free Alongside Ship) and FPA (Free on Board Autonomous Vessel), which only apply to maritime transport. Incoterms 2020 also revises the definition of Free Carrier (FCA) to include all transport modes, not just road and rail.
Other notable changes include:
* The introduction of the CPT (Carriage Paid To) rule, which states that the seller must pay for carriage to the named place of destination, but the buyer bears all risks and costs related to import clearance.
* The revision of the DAT (Delivered At Terminal) rule to specify that delivery occurs when the goods are unloaded at the terminal and made available to the buyer.
* The clarification of the DDU (Delivered Duty Unpaid) rule to state that responsibility for import clearance lies with the buyer, even if customs formalities are carried out by the seller or their agent.
Which Incoterms should I use?
When you’re shipping goods internationally, you’ll need to use Incoterms (international commercial terms) to indicate who is responsible for various costs and risks associated with the shipment. The Incoterm you choose will determine which party is responsible for things like clearing customs, paying import duties, and arranging insurance. There are 11 different Incoterms, and each has a different set of obligations for the buyer and seller.
So, which Incoterm should you use? It depends on your particular situation. If you’re shipping goods that are time-sensitive or perishable, you’ll want to choose an Incoterm that puts the responsibility for getting the goods to their destination on the seller. On the other hand, if you’re shipping high-value goods, you may want to choose an Incoterm that puts the responsibility for ensuring the goods arrive safely on the buyer.
Ultimately, it’s up to you to decide which Incoterm is best for your situation. However, it’s always a good idea to consult with a freight forwarder or customs broker before making your final decision. They can help you understand the implications of each Incoterm and make sure you choose the one that’s best for your needs.
When to use ExWorks
There are many different Incoterms that can be used in international trade, and each has its own specific meaning and implications. ExWorks is one of the more commonly used Incoterms, and it is important to understand when and how to use it correctly.
ExWorks (EXW) is an Incoterm that is used when the buyer is responsible for all aspects of transportation and export clearance from the seller’s premises. This means that the buyer must arrange and pay for their own shipping and insurance, as well as any required export documentation or licenses. The advantage of using ExWorks is that it minimizes the financial risks and responsibilities for the buyer.
However, there are a few things to keep in mind when using ExWorks. First, because the buyer is responsible for all transportation arrangements, they need to be sure that they have a reliable and reputable shipping company lined up in advance. Second, the buyer needs to be aware of any potential export restrictions or requirements that may apply to their goods. Failure to comply with these could result in delays or even confiscation of the goods by customs authorities.
Overall, ExWorks is a good option for buyers who want to minimize their risks and liabilities in an international transaction. However, it is important to be aware of the potential challenges involved in arranging shipping and export documentation before choosing this Incoterm.
When to use FCA
There are 11 different Incoterms® rules, but many users only need to know about the most commonly used rules – EXW, FOB, CPT, CIP, DAT and DAP.
FCA stands for “Free Carrier”. The term FCA is used when the goods are delivered to the carrier nominated by the buyer at the named place. The goods are now under the control of the buyer, but the seller still has responsibility for them. This means that if something goes wrong with the shipment after delivery to the carrier, it is the seller who is responsible, not the carrier.
The named place can be either:
-the Seller’s premises; or
-a third party terminal (for example a port or airport).
The use of FCA is particularly common in air shipments as there may be several different carriers involved in a single journey. It can also be used where road or rail transport is being used and there is a change of carrier along the way.
When to use FOB
Incoterms are international commercial terms that specify the rights and obligations of buyers and sellers in relation to the delivery of goods. Incoterms are used by businesses to define which party is responsible for paying for transportation and insurance costs, and how goods should be delivered.
FOB stands for “Free On Board.” FOB is typically used when goods are being shipped by sea or air. Under an FOB contract, the seller is responsible for delivering the goods to the buyer’s port or airport of choice. The buyer is then responsible for paying the shipping and insurance costs to transport the goods from that point to their final destination.
FOB contracts are often used when goods are being shipped long distances, or when there is a risk of damage or loss during transit. By using an FOB contract, businesses can avoid having to pay for expensive shipping and insurance costs if something happens to the goods during transit.
When to use CIF
There are many different types of Incoterms, and it can be confusing to know when to use which one. The main thing to remember is that Incoterms are all about risk and responsibility. who bears the cost of shipping, and who is responsible for any damage that occurs during transit.
Here are some general guidelines for when to use each type of Incoterm:
CIF (Cost, Insurance, Freight): Use CIF when the buyer wants the seller to handle all aspects of shipping, including arranging transportation and paying shipping costs. The buyer is also responsible for insuring the goods against loss or damage during transit.
CFR (Cost and Freight): Use CFR when the seller is responsible for arranging transportation, but the buyer pays the shipping costs. The buyer is also responsible for insuring the goods against loss or damage during transit.
FOB (Free on Board): Use FOB when the buyer is responsible for arranging and paying for transportation, but the seller pays for loading the goods onto the transport vehicle. The buyer is also responsible for insuring the goods against loss or damage during transit.
When to use CFR
There are many different Incoterms, and choosing the right one can be confusing. CFR is typically used for international shipments of goods by sea or inland waterway. It stands for “cost and freight” and the seller is responsible for paying the costs to get the goods to the port of destination, as well as the freight charges to get them there. The buyer takes on responsibility for any import duties and taxes.
When to use CPT
There are many different Incoterms (International Commercial Terms) that can be used in international trade, but which one is right for your shipment? The Incoterms rules are determined by the International Chamber of Commerce and are updated every few years.
CPT (Carriage Paid To) is an Incoterm that is used for shipments where the seller pays for the transportation of the goods to the buyer. This does not mean that the seller is responsible for all shipping costs, but they are responsible for paying for the main transport of the goods. The buyer is responsible for any additional costs, such as customs clearance and insurance.
CPT can be used for any mode of transport, including air, freight, and courier. It is typically used when the buyer has a good relationship with the seller and trusts them to handle the shipping arrangements.
When to use CIP
When you are ready to move your goods from one location to another, you need to consider which Incoterms® rules to use. There are 11 rules in total, and they are divided into two main categories:
1. E (Ex Works) – This rule is used when the buyer bears all the risks and costs associated with getting the goods from the seller’s premises to their own destination.
2. F (Free Carrier) – In this case, the seller hands over the responsibility and risks of transport to the buyer once the goods have been delivered to a specified carrier at an agreed-upon location.
When to use DAT
There are four main Incoterms that are used in international trade: DAT, DAP, FOB, and CFR. DAT is the most commonly used Incoterm.
DAT stands for “delivered at terminal.” This means that the seller is responsible for delivering the goods to the buyer’s designated terminal. The terminal could be a port, airport, or other location. The buyer is responsible for paying any costs to move the goods from the terminal to their final destination.
DAP stands for “delivered at place.” This means that the seller is responsible for delivering the goods to the buyer’s designated location. The location could be a factory, warehouse, or other place of business. The buyer is responsible for paying any costs to move the goods from the location to their final destination.
FOB stands for “free on board.” This means that the seller is responsible for delivering the goods to the buyers’ designated port of loading. The buyer is responsible for paying any costs to move the goods from the port of loading to their final destination. FOB contracts are often used when ocean freight is involved.
CFR stands for “cost and freight.” This means that the seller is responsible for delivering the goods to themselves to their designated port of loading and also pays for the cost to transport the goods overseas to the designated port of discharge.