Incoterms® (the official set of rules of the International Chamber of Commerce for the interpretation of national and international trade clauses) are frequently used worldwide for international and domestic contracts. They regulate the responsibilities of buyers and sellers with regard to costs and risks as well as freight insurance. First established by the International Chamber of Commerce (ICC) in 1936, Incoterms® regulate the international trade of goods between companies in purchase contracts.
Describtion of Incoterms®:
- Duties: They regulate responsibilities between seller and buyer by defining who is responsible for transport, insurance and the relevant documents for transport.
- Transfer of risk: Determines when the seller transfers the goods and thus the responsibility (transfer of risk) to the buyer.
- Costs: The Incoterms® also regulate which costs are borne by the seller during transport and which by the buyer (costs for transport, packaging, loading and unloading).
The Incoterms® clauses for all modes of transport:
EXW – Ex Works
“Ex Works” means that the Seller delivers as soon as he makes the goods available to the Buyer at the Seller’s premises or at another designated location (e.g. factory, warehouse, etc.). The seller does not have to load the goods on any collecting vehicle nor does he need to clear the goods for export if necessary.
FCA – Free Carrier
“Free Carrier” means that the goods are deemed to have been delivered as soon as the Seller makes the goods available to the carrier or another person designated by the Buyer. Delivery shall take place when the named place is on the Seller’s premises or reaches a named place after loading onto the transport vehicle arranged by the buyer. The parties should determine the place within the named place of delivery as precisely as possible, as the risk passes to the buyer at this point.
CPT – Carriage Paid To
“Carriage Paid To” means that the seller delivers the goods to the carrier or another person designated by the seller at an agreed place (if such a place has been agreed between the parties) and that the seller must conclude the contract of carriage and pay the freight charges incurred for carriage of the goods to the named place of destination. Once the goods have been delivered to the buyer in this way, the seller does not guarantee that the goods will reach the place of destination in sound condition, in the stated quantity or indeed at all. This is because risk transfers from seller to buyer when the goods are delivered to the buyer by handing them over to the carrier; the seller must nonetheless contract for the carriage of the goods from delivery to the agreed destination.
CIP – Carriage and Insurance Paid To
“Carriage and Insurance Paid To” means that the seller delivers the goods to the carrier or another person designated by the seller at an agreed place (if such a place has been agreed between the parties). The Seller shall bear the costs until delivery is made but does not guarantee that the goods will reach their destination in perfect condition. Other than CPT has the seller to cover the insurance of the goods against loss or damage during transport at least to the place of the agreed destination.
DAP – Delivered at Place
“Delivered at Place” means that the seller delivers when the goods are made available to the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks associated with the transport to the named place. The buyer, in turn, is responsible for unloading the goods at the place of destination and bears the risks from here.
DPU – Delivered at Place Unloaded
“Delivered at Place Unloaded” means that the transfer of risk and delivery from the seller to the buyer takes place after unloading of the arriving means of transport at the named place of destination or at an agreed place at this place. The seller bears all risks involved in bringing the goods to and unloading them at the named place of destination. DPU is the only Incoterms rule that requires the seller to unload goods at destination. The seller should therefore ensure that it is in a position to organise unloading at the named place. Should the parties intend the seller not to bear the risk and cost of unloading, the DPU rule should be avoided and DAP should be used instead.
DDP – Delivered Duty Paid
“Delivered Duty Paid” means that the seller delivers when he places the goods cleared for import 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 costs and risks associated with the transport of the goods to the place of destination and has the obligation to clear the goods not only for export but also for import, to pay all duties for both export and import and to complete all customs formalities.
Rules for Sea & Inland Waterway Transport
FAS – Free Alongside Ship
“Free Alongside Ship” means that the seller delivers when the goods are delivered alongside the ship (e.g. at a quay or on an inland waterway vessel) in the named port of shipment. The risk of loss of or damage to the goods passes if the goods are alongside the ship. The buyer shall bear all costs from that time.
FOB – Free On board
“Free On Board” means that the seller delivers the goods on board the ship designated by the buyer at the named port of shipment or ships the goods already delivered in this way. The risk of loss of or damage to the goods is transferred when the goods are on board the ship. The buyer shall bear all costs from this point in time.
CFR – Costs and Freight
“Cost and Freight” means that the Seller delivers the goods on board the vessel or procures the goods already delivered. The risk of loss of or damage to the goods passes when the goods are on board the ship. The seller shall conclude the contract of carriage and bear the costs and freight necessary to transport the goods to the named port of destination.
CIF – Costs, Insurance and Freight
“Cost Insurance and Freight” means that the Seller delivers the goods on board the vessel or procures the goods already delivered. The risk of loss of or damage to the goods passes when the goods are on board the ship. The Seller shall conclude the contract of carriage and bear the costs and freight necessary to transport the goods to the named port of destination.
In addition, the Seller shall take out, at its own expense, transport insurance at least equal to the minimum cover provided for in Clauses (C) of the Institute Cargo Clauses (LMA/IUA) or similar clauses. If the buyer wishes a higher level of insurance cover, he must expressly agree this with the seller or take out additional insurance himself.
The following brochure shows the changes to the Incoterms® in their new version and describes them in detail. The new version of the Incoterms® comes into force on 1 January 2020 and takes into account the increased security requirements for the transport of goods.
Download all changes including our infografic below:
Read more about Incoterms® rules from the official International Chamber of Commerce website, where you can also order the “Incoterms® 2020” publication. Sign up for online training on the Incoterms® 2020 rules at icc.academy.