Incoterms are a set of commercial terms which are used inside International Sales Contracts and Agreements in order to clarify which party in the transaction (supplier or buyer) is responsible for any risks incurred during the period the products are being transferred from the seller to the buyer. In other terms, Incoterms define the responsibilities of suppliers and sellers during the transportation of products.
This is an important element during an export agreement as the costs associated with the transportation of the products are significant. The Incoterms define who is responsible to cover the transportation cost and custom formality costs from the moment the products are loaded from the supplier until the moment the products are delivered to the buyer. In addition to the above, many times the products can be damaged while in transport and it is important to have clarified in advanced who is responsible to cover such costs and if the products have insurance while in transit or not.
Incoterms are published by the International Chamber of Commerce (ICC) and were first published in 1936. Since then they have been revised several times in order to follow the changes in the International Arena. Currently the latest Incoterm version are the Incoterms 2010 but previous Incoterms versions are still valid in some old contracts. It is important to specify always in the contracts the version of Incoterms that is valid each time (i.e. Incoterms 2000 or Incoterms 2010 etc).
Incoterms 2010 have been grouped to two categories.
Terms that are valid for any transport method
Terms that are valid only during a vessel transport
Below, you may find a list of the terms:
Category 1: Incoterms that apply to any mode of transport are:
- EXW Ex Works
- CPT Carriage Paid To
- CIP Carriage and Insurance Paid To
- DAT Delivered at Terminal
- DAP Delivered at Place
- DDP Delivered Duty Paid
Category 2: Incoterms that apply to transport with vessels:
- FAS Free Alongside Ship
- FOB Free on Board
- CFR Cost and Freight
- CIF Cost, Insurance, and Freight
Figure: Risks incurred by transaction party during products transportation
|Export Location||Transit Time||Import Location|
|Incoterms||Export Custom Formalities||Freight until loading port||Unloading truck at loading port||Loading on vessel at loading port||Freight until port or custom house of import destination||Insurance||Unloading in port of import||Loading on truck in port of import||Freight to delivery point||Import custom formalities||Import taxes|