Your guideline for international trade regulations
The Incoterms® are the rulebook in international trade. They define the responsibilities of sellers and buyers, thus enabling all trade partners to clearly calculate their costs and risks in purchasing and selling.
The Incoterms® were defined in 1936 by the International Chamber of Commerce (ICC) to make import and export easier for organisations. The latest version has been in effect since 1 January 2020.
Widely known as Incoterms®, the International Commercial Terms are the most important rulebook for international trade. A three-letter code is attributed to all trade conditions defined in the clauses. It is common practice for buyers and sellers to refer to these codes, for instance, in purchase contracts. See below for more details on the most important of these codes:
Clauses for all modes of transport:
EXW – Ex Works (insert named place of delivery)
EXW refers to the provision of the transported goods at the seller’s premises. This can be a plant, production facility, warehouse or similar. Loading the goods onto a vehicle or releasing them for export is not included in the seller’s responsibilities.
FCA – Free Carrier (insert named place of delivery)
FCA defines the destination of the delivery. There are two possibilities: The first, FCA (a), applies when the seller delivers the goods that are released for export to their own premises. The second, FCA (b), applies when the seller delivers the goods that are released for export to premises that are not their own. In both variants, the location is named in advance. In both cases, the buyer can nominate a freight carrier or another party to whom the goods are to be delivered. The risks and costs for buyer and seller differ, depending on the place of delivery.
CPT – Carriage Paid to (insert named place of destination)
CPT determines that the seller bears the freight charges up to a defined destination.
CIP – Carriage and Insurance Paid to (insert named place of destination)
CIP means that the seller is responsible for bearing the freight charges to the defined place of destination and the costs of minimum insurance coverage for the goods during transport.
DAP – Delivered at Place (insert named place of destination)
DAP determines that the buyer is responsible for unloading the goods. The goods are deemed delivered as soon as the seller has deposited the goods onto the arriving means of transport at the agreed place of delivery, to be unloaded from there.
DPU – Delivered at Place Unloaded (insert named place of destination)
DPU determines that the seller unloads the goods at the destination. In addition, the seller bears all costs and risks of the transport until the arrival of the goods at the place of delivery. This includes fees at the port and port of destination, freight charges and unloading by the main freight carrier at the place of delivery.
DDP – Delivered Duty Paid (insert named place of destination)
In this case, the seller bears responsibility for the delivery to the indicated place of delivery in the buyer’s country. In addition, the seller bears all freight charges up to delivery at the destination, including import duties and taxes. The buyer is responsible for unloading.
Rules for sea and inland water transport:
FAS – Free Alongside Ship (insert named port of shipment)
The goods are deemed delivered after they have been brought alongside vessel at the port of shipment agreed with the buyer. The buyer assumes the risk of loss or damage of the goods and freight charges from this point forward.
FOB – Free on Bord (insert named port of shipment)
With FOB, the goods are loaded onto a vessel named by the customer or brought onto the vessel in an already loaded state. As soon as the goods are on board the vessel, the buyer assumes all costs and risks.
CFR – Cost and Freight (insert named port of destination)
With CFR, the seller delivers the goods on board the vessel. The risk of loss or damage transfers to the buyer as soon as the goods are on board. From then on, the buyer must pay all further costs up to the port of destination and arrange for the onward transport.
CIF – Cost, Insurance and Freight (insert named port of destination)
CIF conditions are similar to CFR except that the buyer must ensure minimum insurance coverage of the goods against loss and damage during transport.
Differences between Incoterms® 2010 and 2020:
The Incoterms® clause FCA (Free Carrier) now offers the additional option of making a note in the bill of lading before loading the goods on board.
The costs now appear centralised in A9/B9 of the respective Incoterms® clause.
CIP now requires at least minimum insurance cover under Institute Cargo Clause (A) (all risks, subject to specified exclusions).
CIF now requires at least minimum insurance coverage under Institute Cargo Clause (C) (number of enumerated risks, subject to specified exclusions).
The Incoterms® clauses Free Carrier (FCA), Delivered at Place (DAP), Delivered at Place Unloaded (DPU) and Delivered Duty Paid (DDP) now take into account that the goods can be transported without commissioning a freight carrier and by using the parties’ own means of transport instead.
The Delivered at Terminal (DAT) Clause was changed to Delivered Place Unloaded (DPU) to make it clear that the destination can be any location, not just a terminal.
The Incoterms® 2020 now expressly shift the responsibility for safety-relevant requirements and ancillary expenses to the seller.
The Incoterms® are not a complete contract of purchase but rather an integral part of it. For their application, the following structure is recommended:
“[Selected Incoterm® clause] [indicated port, place or point] Incoterms® 2020”
Examples: “FCA shipping warehouse TR-Istanbul Incoterms® 2020” or “DAP Bulevardul Iuliu Maniu 79, Bucuresti 077042, Romania”
If no year is indicated with the Incoterms®, the following applies: Until December 2019, the Incoterms® 2010 apply.
As of 1 January, 2020, the Incoterms® 2020 apply.
If any other year is indicated, such as Incoterms® 1980, the corresponding conditions apply.
For further information, please go to the official ICC website: https://iccwbo.org.