Incoterms

Incoterms map

Incoterms Robert Wielgorski Revised EN

Incoterms (International Commercial Terms) are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law. They are widely used in International trade transactions and procurement processes, serving as a universal language for buyers and sellers around the world. The purpose of Incoterms is to provide a set of international rules for the interpretation of the most commonly used terms in foreign trade. This reduces or altogether eliminates uncertainties arising from different interpretation of such terms in different countries.

History

The first set of Incoterms was introduced in 1936 by the ICC, in response to the need for more clarity and predictability in international trade agreements. Since then, they have been updated periodically to reflect changes in the global trade environment. The most recent version, Incoterms 2020, was published on September 10, 2019.

Purpose and Function

The main purpose of Incoterms is to define the roles, costs, and risks associated with the transportation and delivery of goods in international trade. They are used to divide the costs and risks between the buyer and seller, including at what point the seller's responsibility ends and the buyer's begins, who pays for shipping, insurance, and tariffs, and who is responsible for the goods at each step during transportation.

Key Terms

Some of the key Incoterms include:

• EXW (Ex Works): The seller makes the goods available at their premises. The buyer is responsible for all charges.
• FCA (Free Carrier): The seller delivers the goods to a carrier or another person nominated by the buyer at the seller's premises or another named place.
• CPT (Carriage Paid To): The seller pays for the carriage of the goods up to the named destination.
• CIP (Carriage and Insurance Paid to): Similar to CPT, but the seller also has to procure insurance against the buyer's risk of loss or damage to the goods during the carriage.
• DAT (Delivered at Terminal): The seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination.
• DAP (Delivered at Place): The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination.
• DDP (Delivered Duty Paid): The seller delivers the goods - cleared for import - to the buyer at destination. The seller bears all costs and risks involved in bringing the goods to the place of destination, including customs duties.
• FAS (Free Alongside Ship): The seller delivers the goods to the named port of shipment, alongside the vessel.
• FOB (Free on Board): The seller delivers the goods on board the ship nominated by the buyer at the named port of shipment.
• CFR (Cost and Freight): The seller must pay the costs and freight necessary to bring the goods to the named port of destination.
• CIF (Cost, Insurance, and Freight): Similar to CFR, but the seller also has to procure marine insurance against the buyer's risk of loss or damage to the goods during the carriage.

Application and Selection

The selection of an Incoterm must be mutually agreed upon by the buyer and seller. Factors influencing the choice of an Incoterm include the mode of transport, the specific requirements of the goods shipped, customs practices in the port of departure and destination, and the responsibilities the buyer and seller are willing to assume. The chosen Incoterm should be specified in the sales contract, and it is crucial that both parties fully understand the obligations, costs, and risks they are agreeing to.

Impact on Global Trade

Incoterms play a crucial role in global trade by reducing uncertainties and misunderstandings. They provide a common set of rules that parties in different countries can refer to, thereby facilitating smoother transactions, reducing disputes, and promoting international trade efficiency.

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