A quick guide to Incoterms
Incoterms (short for “International Commercial Terms”) are standardized rules that define the obligations and responsibilities of buyers and sellers in international trade transactions. They were first introduced by the International Chamber of Commerce (ICC) in 1936 and have been updated periodically to reflect changes in global trade practices.
There are currently 11 Incoterms in use, which are grouped into two categories based on the mode of transportation used for the shipment:
Incoterms for any mode of transport:
EXW (Ex Works): The seller’s responsibility ends when the goods are made available to the buyer at the seller’s premises.
FCA (Free Carrier): The seller is responsible for delivering the goods to a carrier*.
CPT (Carriage Paid To): The seller is responsible for delivering the goods to the carrier*. The seller is paying the transportation costs to the agreed destination.
CIP (Carriage and Insurance Paid To): The seller is responsible for delivering the goods to the carrier* and paying the transportation costs and insurance to the agreed destination.
DAP (Delivered at Place): The seller is responsible for delivering the goods to a named place of destination.
DPU (Delivered at Place Unloaded): The seller is responsible for delivering the goods to a named place of destination and unloading them.
Incoterms for sea and inland waterway transport:
FAS (Free Alongside Ship): The seller is responsible for delivering the goods alongside the ship at a named port of shipment.
FOB (Free on Board): The seller is responsible for delivering the goods on board the ship at a named port of shipment.
CFR (Cost and Freight): The seller is responsible for delivering the goods on board the ship at a named port of shipment and paying the cost of freight to the agreed destination.
CIF (Cost, Insurance and Freight): The seller is responsible for delivering the goods on board the ship at a named port of shipment and paying the cost of freight and insurance to the agreed destination.
DDP (Delivered Duty Paid): The seller is responsible for delivering the goods to a named place of destination and paying all the costs, including duties, taxes, and other charges.
*or another person nominated by the seller at a named place.
It’s worth noting that the use of Incoterms is not mandatory, but they are widely recognized and used by international traders as a means of standardizing commercial transactions and minimizing misunderstandings between buyers and sellers.
