What are incoterms

International commercial Terms or INCOTERMS are a series of

international sales terms that are widely used in international
commercial transaction.
They are related to the rights and obligations of the parties to the
contract of sale with respect to the delivery of goods sold.
These are published by the International Chamber of
Commerce(ICC), these terms are recognized by governments, legal
authorities and practitioners globally to assist in International trade.
These terms make the functioning of international trade smoother
and help traders to understand one another in different countries.
Protected by ICC copyright, these international commercial terms
are the most widely used international contracts

Incoterms safeguard the following issues in the foreign

trade contract & international trade contract
1) To determine the critical point of the transfer of risks of the
seller to the buyer in the process of forwarding of the goods
(risks of loss, deterioration, robbery of the goods). In such
situations, Incoterms allow the person who supports these risks
to make specific arrangements in the terms of insurance.
2) To specify who is going to subscribe the contract of carriage ,
that is the seller(exporter) or the buyer (importer).
3) To distribute the logistic and administrative expenses between
the seller and the buyer at the various stages of the process.
4) It is important to demarcate who is responsible for packaging,

5) To confirm and fix respective obligations for the achievement of

formalities of exportation and importation, the payment of the rights
and taxes of importation as well as the sending of the documents
6)To deal with Foreign trade , there are 11 INCOTERMS globally adopted
by the ICC as per incoterms 2010.

7) Each Incoterm refers to the type of agreement for the purchase and
shipping of goods internationally

8) There are different terms that help users to deal with different
situations involving the movement of goods

List of incoterms
The following is the list after the revision in 2010 the total
number of Incoterms have come down to 11

(A)Rules for any mode of transport:

1) EXW Ex Works (named place of delivery)
2) FCA Free Carrier (named place of delivery)
3) CPT Carriage Paid To (named place of destination)
4) CIP Carriage and Insurance Paid to (named place of
destination)
5) DDP Delivered Duty Paid (named place of destination)

 Rules for sea and inland waterway transport

1) FAS Free Alongside Ship (named port of shipment)
2) FOB Free on Board (named port of shipment)
3) CFR Cost and Freight (named port of destination)
4) CIF Cost, Insurance & Freight (named port of
destination)
) Previous terms fromIncoterms 2000eliminated fromIncoterms 2010

)DAF Delivered at Frontier (named place of delivery)

)DES Delivered Ex Ship
)DEQ Delivered Ex Quay (named port of delivery)
)DDU Delivered Duty Unpaid (named place of destination)

Sellers obligations
In spite of the nature of the contract, a seller has the following
set of obligations
The seller must provide the goods and the commercial
invoice, or its equivalent electronic message, in conformity
with the contract of sale.
He has to pay the costs of those checking operations(such as
checking quality, measuring, weighing, counting) which are
necessary for the purpose of delivering the goods. He has to

Buyers obligations
In spite of the nature of the contract, the buyer has the
following obligations.
The buyer must pay the price as provided in the
contract of sale.

Ex works cost
The EWQ refers to an agreement between the buyer(importer)
and the seller (exporter), wherein the former agrees to pay the
latter for the cost of the finished goods only.
The seller has the minimum legal obligation
The buyer bears the cost of transporting the goods from the
sellers place or the place mentioned in the contract.

Incoterms Groups

There are thirteenincoterms, and they are divided into four

groups.

Group E: departure terms.

The seller makes the goods available to the buyer at the
seller's own premises.
The buyer is responsible for all charges.
The buyer pays all transportation costs and also bears the
risks for bringing the goods to their final destination.
EXW ex works (named place of delivery) means that
a seller has the goods ready for collection at his
premises(works, factory, warehouse, plant) on the date

 Group F: shipment terms - main carriage unpaid.

Where the seller is called on to deliver the goods to a
carrier named by the buyer.
These are shipment contracts with the shipment point
named, and carriage is unpaid by the seller
FCA free carrier (named place of delivery)- this term is
suitable for all modes of transport, including carriage by air,
rail, road and containerizers/multi-modal sea transport.
FAS Free Alongside Ship (named port of shipment)- the seller
must place the goods alongside the ship at the named port, this is
applicable only for maritime transport and not for multi-modal sea
transport in containers
FOB Free on Board (named port of shipment) The seller must
himself load the goods on board the ship nominated by the buyer , cost
and risk being divided at ships rail. this is applicable only for maritime
transport and not for multi-modal sea transport in containers

 Group C: shipment terms - main carriage paid.

Where the seller has to contract for carriage, but does not
assume the risk of loss of or damage to the goods or
additional costs due to events occurring after shipment and
dispatch.
These are shipment contracts with the destination point
named, and carriage paid by the seller.
CFR or cnf cost and freight(named destination port)
the seller must pay the costs and freight to bring the
goods to the ports of destination, this is applicable only to
maritime transport and insurance for the goods is not
included. Insurance is the cost of buyer
CIF Cost, Insurance & Freight (named port of

 CPT Carriage Paid To (named place of destination)

this is the general/ containerized/multimodal equivalent
of cfr. The seller pays for the carriage to the named point
of destination, but the risk passes when the goods are
handed over to the first carrier

CIP Carriage and Insurance Paid to (named place of

destination) this is the containerized transport/
multimodal equivalent of CIF. The seller pays for the
carriage and insurance to the named destination point, but
the risk passes when the goods are handed over to the first
carrier

 Group D arrival
DEQ Delivered Ex Quay (named port of delivery)
this was replaced by DAT(delivery at terminal) in 2010. DEQ
was similar to des, but the passing of risk does not occur
until the goods have been unloaded at the port of
destination.
DDP Delivered Duty Paid (named place of
destination) DDP is also used interchangeably with the
term free domicile.
It is the most comprehensive term for the buyer. In most of
the importing countries, taxes such as (but not limited to)
vat and excises are not considered prepaid. Instead , they
are handled as refundable tax

 DAT (delivered at terminal) the delivery takes place by

delivering the goods to the buyer after unloading from the
arriving way of transport.

DAP( delivered at place) this replaced DEF, des and DDU

in 2010 .
The delivery takes place by providing the goods to the buy
after it is ready to be unloaded
Under this term the seller bears all costs and risks associated
with transporting the goods to the agreed destination.

Choosing the appropriate

incoterm

In order to choose the appropriate incoterm, we should take into

consideration some circumstances that in principle may seem
irrelevant, but in reality they may entail costs that may have not
been budgeted in advance for example
1) With FOB, the obligation of delivery shall not be compiled with
once the goods have passes the ships rail but once the good have
been placed on board. The risk in stowing is borne by the buyer;
2) With CFR, unloading will be borne by the buyer except otherwise
agreed by the parties;
3) With CIF, the moment when the risk is passes on to the buyer will
take place when the goods are delivered on board the ship;
4) With CPT, unloading shall be borne by the buyer except that it has
to be borne but the seller pursuant to the agreement of transport;

5) EXW is nor advisable for the seller, nor DAP for a buyer, when
payment has been made set through documentary credit;
6) Certain countries do not allow vat taxes payment by a party
other than the local importer, therefore in the event that the
parties agree a DDP this shall be VAT excluded ;
7) In those cases where the seller is obliged to hire an insurance
to cover the risk during transportation, the seller shall hire such
insurance under the name of the buyer and not under his own
name; otherwise the Incoterms nature would be diminished.