To avoid conflicts and difficulties, importers and exporters – or buyers and sellers – must have a common understanding of the terms and conditions under which they trade. In order to make this easier, the International Chamber of Commerce (ICC at Paris) has developed a series of international commercial (sales) terms - the Incoterms - to which parties may refer in their commercial contracts. The Incoterms are used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices. They closely correspond to the United Nation Convention on Contracts for the International Sale of Goods (CISG, Vienna 1980). The first Incoterms version was introduced in 1936 and the present dates from 2000. The mention of “Incoterms 2000” in a contract determines the obligations of the buyer and the seller and greatly contributes towards eliminating causes of disagreement. The International Chamber of Commerce are studying on new Incoterms, to be released probably in 2011, which will entail a few adjustments to the present Incoterms 2000.
The complete text of Incoterms constitutes a book of its own and can be purchased from www.iccbooks.com. Note: The “ICC Guide to Incoterms 2000” is recommended reading and it explains how Incoterms 2000 can work for you in daily practice and provides practical answers to important and recurring questions. Only the most commonly used terminology will be mentioned here, with the respective obligations of seller and buyers given in a concise transcription. Nevertheless, a comment on the Incoterms 2000 can be found on the UNCITRAL-website and especially at the website Incoterms.atspace.com .
Incoterms apply only if incorporated in the contract of sale or if they are specified in the solicitation document, mentioned in the offer, the sales conditions, the purchase order, the confirmation of an order or if they are stipulated by the parties in separate agreement. Parties wishing to use Incoterms 2000 should clearly specify that their solicitation document and the contract are governed by Incoterms 2000. Incoterms do not apply directly to questions relating to the transfer of ownership, property rights of the goods, breaches of contract and its consequences, exclusions of liabilities in certain circumstances, limitation period and conditions of payment. These should be clarified in the sales contract.
Incoterms 2000 are published by the International Chamber of Commerce (ICC) in Paris and are grouped into four different categories. In Groups E and F the seller’s obligations are minimal and the buyer must do most of the work and assume maximum risk. As we move to Group C, the supplier’s obligations become more extensive, however the buyer still assumes risks. As we move to group D, the supplier makes most arrangements and assumes maximum risk, whereas the buyer must pay for and arrange import customs clearance and un-loading from the forwarder’s vehicle at the final destination.
Caution must be exercised when using Incoterms because the Incoterms relate to particular modes of transportation. For example, some of the Incoterms deal solely with transport by sea. Terms such as FOB and CIF can be used only for ocean bound freight. FOB, meaning Free on Board, translates to the shipper (seller) having upheld his part of the agreement when the goods pass the ship's rails at the port of exit. The receiving party (buyer) assumes risk and costs associated with the goods once they pass the ship's rail in the seller's home port. Due to the specific mention of the ship's rails, an aircraft or other mode of transport could not be used with FOB. For a shipment scheduled for delivery by air, rail, or some other form of transport with the same agreement as FOB, one would need to use the Incoterm FCA, or Free Carrier. FCA can include other modes of transportation such as road, rail, interland waterway, and air. Whereas transfer under FOB takes place when the cargo passes the ship's rails, transfer with FCA occurs when delivery of goods has been made at a destination previously outlined by the buying party.
There are 13 different Incoterms (see for their meaning also ICC). At the end of this page, you'll find two tables that tell you how the responsibilities for performing (service/event) and for preparation (documents) are devided over the seller and the buyer. A third table indicates the moment on which the risk shifts from the seller to the buyer (transfer of risks). Again it has to be mentioned that Incoterms have no meaning for questions relating to the transfer of ownership, property rights of the goods, breaches of contract and its consequences, exclusions of liabilities in certain circumstances, limitation period and conditions of payment. The sale contract itself must provide an answer for these matters.
EXW - Ex-Works, named place where shipment is available
to the buyer, not loaded.
FCA - Free Carrier, unloaded at the seller's dock OR
a named place where shipment is available to the international carrier
or agent, not loaded.
FAS - Free Alongside Ship, named ocean port of shipment.
FOB - Free On Board vessel, named ocean port of shipment.
CFR - Cost and Freight, Named ocean port of destination.
CIF - Cost, Insurance and Freight, named ocean port
CPT - Carriage Paid To, named place or port of destination.
CIP - Carriage and Insurance Paid To, named place or
port of destination.
DAF - Delivered At Frontier, named place of destination,
by land, not unloaded.
DES - Delivered Ex-Ship, named port of destination,
DEQ - Delivered Ex-Quay, named port of destination,
unloaded, not cleared.
DDU - Delivered Duty Unpaid, named place of destination,
not unloaded, not cleared.
DDP - Delivered Duty Paid, named place of destination,
not unloaded, cleared.
Incoterms not only describe the seller’s and buyer’s obligations and specify the point when the responsibilities for the transportation costs shift from the seller to the buyer, it also determines the point when the risks associated with transportation transfer from the seller to the buyer. This is the case for: