Incoterms, international trade terms, are rules established by the International Chamber of Commerce (ICC) that define the responsibilities and obligations of both the seller and the buyer in international trade transactions. These rules are used to determine the scope of costs, risks and liabilities related to the transportation and delivery of goods.
Worldwide transport of goods requires a lot of arrangements. Who pays what, and who is responsible for what requirements and risks? To clarify this, Incoterms have been drawn up. This is an international standard detailing the transportation rights and duties of both buyers and sellers.
Overview :
The Incoterms® are a set of 11 individual rules issued by the International Chamber of Commerce (ICC) which define the responsibilities of sellers and buyers for the sale of goods in international transactions. Of primary importance is that each Incoterms rule clarifies the tasks, costs, and risks to be borne by buyers and sellers in these transactions. Familiarizing yourself with Incoterms will help improve smoother transactions by clearly defining who is responsible for what and each step of the transaction.
The Incoterms® 2020 rules are updated and grouped into two categories reflecting modes of transport. Of the 11 rules, there are seven for ANY mode(s) of transport and four for SEA or LAND or INLAND WATERWAY transport.
Classification of incoterms
There are different kind of Incoterms.
Ex Works (EXW)
Free Carrier (FCA)
Carriage Paid To (CPT)
Carriage and Insurance Paid To (CIP)
Delivery At Terminal (DAT)
Delivery At Place (DAP)
Delivery Duty Paid (DDP)
Free Alongside Ship (FAS)
Free on Board (FOB)
Cost and Freight (CFT)
Cost, Insurance and Freight (CIF)
Few major Inco Terms details :
FOB (Free On Board)
Under this Incoterm, the seller must deliver the goods on board the vessel at the named port of shipment. From that moment on, the responsibility and risks are transferred to the buyer, who is responsible for all costs and formalities related to shipping, loading and customs export formalities.
EXW (Ex-Works)
In these terms, the seller’s liability is minimal, since he makes the goods available to the buyer at his own premises or at an agreed place. The buyer assumes all risks and costs from that point on.
Delivery Duty Paid (DDP)
The seller is responsible for the entire transport process, including the payment of import duties. Delivery Duty Paid is basically the opposite of Ex Works: at EXW, the seller bears almost no risk while at DDP, he bears al the risks and responsibilities. The risks and responsibilities transfer from seller to buyer when the buyer literally receive the goods. Although DDP was initially not used very often for sea- and airfreight, it is becoming a more and more popular incoterm.
