First published in 1936, INCOTERMS are used for the sale of goods in international contracts.
INCOTERMS are 3-letter trade terms providing international accepted definitions and rules of interpretation for most of the common commercial terms. INCOTERMS define the relevant obligations, costs and risks contained in the delivery of goods from seller to buyer. They are also an essensial part of freight shipping terms.
INCOTERMS usage has significantly reduced misunderstandings among traders and subsequently curtailed disputes and litigation.
INCOTERMS are not a contract; nor do they replace the laws governing a contract. Price that is to be paid, currency and credit terms are not addressed in the INCOTERMS. Title transfers are not defined.
There are 2 categories of INCOTERMS – transport mode and maritime
The incoterms for any transport mode include the following:
EXW – EX WORKS says that the seller’s sole responsibility is making the goods available at his premises. The full cost and risk of goods movement from seller premises to destination is the borne by the buyer.
FCA – FREE CARRIER means the seller is delivering the goods that are cleared for export to the buyer’s carrier. If the carrier picks up at the seller’s premises, the seller loads the goods. The buyer then bears the costs and risks of moving goods to the destination
CPT – CARRIAGE PAID TO means that the seller pays for transporting goods to the destination. The buyer takes on the risks of damage or loss from the point the goods are transferred to the first carrier.
CIP – CARRIAGE AND INSURANCE PAID denotes that the seller pays for transporting goods to the destination and purchases the cargo insurance. After the goods are transferred to the first carrier, the buyer assumes the risk of damage or loss.
DAT – DELIVERED AT TERMINAL says that the seller delivers and unloads goods from the transport vehicle and then places the goods at the buyer’s disposal at named destination.
DAP – DELIVERED AT PLACE means that the seller delivers when the goods, ready for unloading at the designated destination, are placed at the buyer’s disposal. The seller accepts all risks in bringing the goods to the destination.
DDP – DELIVERED DUTY PAID denotes that the seller delivers the goods, ready for unloading. The seller also clears the goods for import at the destination. The seller assumes all risks and costs including custom duties and taxes.
You can check HERE one table wich is so easy to understand the incoterms.
The Maritime incoterms only terms include the following:
FAS – FREE ALONGSIDE SHIP denotes that the seller delivers the goods to the port that is the starting point. From there, the buyer assumes all costs and risks of damage or loss.
FOB – FREE ON BOARD says that the seller delivers the goods onto the ship and clears them for export. Then the buyer bears the costs and risks of damage or loss.
CFR – COST AND FREIGHT means that the seller is clearing the goods for export and paying for the transportation to the destination. The buyer assumes the risks of damage or loss from the point of origin.
CIF – COST INSURANCE AND FREIGHT says the seller is clearing the goods for export, paying for transportation to the port of destination and purchasing the cargo insurance. The buyer assumes the risk of loss or damage from the point of origin.