Incoterms (short for 'International Commercial Terms')
are a series of three letter standard trade terms that were created
by the International Chamber of Commerce (ICC) for
the interpretation of trade terms in international contracts for
the sale of goods.
Incoterms were first published in 1936 and provide
internationally accepted definitions and rules of interpretation
for most common commercial terms. Incoterms are accepted by
governments, legal authorities and practitioners worldwide and
their advantage is that when they are used they have an accepted
meaning reducing the potential for misunderstanding in
international trade. The scope of Incoterms is limited to the
rights and obligations of the parties with respect to the delivery
of tangible goods sold, and are not concerned with intangibles such
as computer software.
Incoterms simply clarify which party, buyer or seller, carries
the risk of loss or damage to the goods, when the risk passes and
who will pay for carriage and insurance of the goods as well as
What Incoterms do?
The primary purpose of Incoterms is that they are designed to be
used where goods are sold for delivery across national boundaries.
The terms operate only on the relationship, rights and obligations
of the parties in respect to the delivery of the goods sold.
It should be noted that by themselves Incoterms do not:
Constitute a contract
Supersede the law governing the contract
Define where title transfers
Address the price payable, currency or credit terms.
On 1 January 2011, the ICC published revisions to its Incoterms
and Incoterms 2010 will replace Incoterms 2000 as the primary
avenue for determining the allocation of risks and responsibilities
in the sale of goods.
Incoterms 2010 takes into account the latest developments in
commercial practice and updates and consolidates some of the former
Incoterms 2010 consists of only 11 Incoterms, a reduction from
the 13 Incoterms included in Incoterms 2000. The reduction from 13
to 11 Incoterms was accomplished by substituting two new Incoterms,
Delivered at Terminal (DAT) and Delivered at Place (DAP) for DAF
(Delivered at Frontier), DES (Delivered Ex-Ship), DEQ (Delivered
Ex-Quay) and DDU (Delivered Duty Unpaid). The new terms apply to
all modes of transport.
Under previous Incoterm revisions, terms were grouped in order
of increasing responsibility on the seller. The rules in Incoterms
2010 are organised into two categories according to the mode of
transport as follows:
Incoterms for any mode or modes of transport:
EXW – Ex Works
FCA – Free Carrier
CPT – Carriage Paid To
CIP – Carriage and Insurance
DAT – Delivered At Terminal
DAP – Delivered At Place (new)
DDP – Delivered Duty Paid.
Incoterms for Sea and Inland Waterway Transport:
FAS – Free Alongside Ship
FOB – Free On Board
CFR – Cost and Freight
CIF – Cost, Insurance and
The first class of terms may be used for any mode of transport
and may function even where there is no maritime transport. The
second class of terms refers to cases where goods are carried
Summary of new rules
Both new rules provide a named destination for delivery. In DAT,
the seller bears all the risk in the goods until they are
delivered. Goods are considered delivered when they are unloaded at
a named terminal and placed at the disposal of the buyer.
Under DAP, the seller retains the risk in the goods until they
are delivered, however, the unloading of the goods upon arrival is
the responsibility of the buyer. The goods are considered delivered
on reaching the named place ready for unloading.
In both cases the seller is responsible for export clearance but
is not responsible for import clearance.
Incoterms 2010 also addresses duties to provide information
regarding security related clearances and other chain-of custody
The aim of the Incoterms 2010 is to adapt to changes in
international trade since 2000, changes reflecting new security
concerns and the growing trend to replace paper documents with
electronic documents. It is designed to be more user friendly with
an expanded list of explanations to assist users and to more
accurately reflect current trading practice.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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