When a seller and a buyer enters into a sales contract, they would need to specify details eg method of payment, what are the goods (quantity and quality), delivery dates, documents required etc. They would also indicate what is the Incoterms Rule to be used.
What is Incoterms?
International Commercial Terms (Incoterms) was first created and published in 1936 by the International Chamber of Commerce (ICC), located in Paris. The Incoterms® rules are an internationally recognised standard set of trading terms and conditions used worldwide in international and domestic contracts for the sale of goods. The Incoterm rules describe mainly the tasks, costs and risks involved in the delivery of goods from the sellers to buyers.
The Incoterms rules are revised from time to time. The most recent revision is Incoterms 2010 and the last modifications in Incoterms 2010 will mainly eliminate four Incoterms – DEQ, DES, DAF and DDU – and introduce two new Incoterms “D”, DAT (Delivered at Terminal) and DAP (Delivered at Place of Destination).
Each Incoterms rule specifies:
- the obligations of each party (e.g. who is responsible for services such as transport; import and export clearance etc)
- the point in where risk transfers from the seller to the buyer. The buyer and seller can achieve a precise understanding of what each party is obliged to do, whose’s responsibility lies in the event of loss, damage or other mishap
How to use the Incoterms 2010?
- Clearly indicate in the sales contract that the Incoterms 2010 is being used such as “the selected Incoterm used including the designated place, followed by Incoterms 2010”.
- Choose the appropriate Incoterms rule taking into account of the type of goods that will be shipped and the type of transportation that will be used.
Incoterms can be divided into 4 categories
11 Incoterms Rules
|EXW||FOB FAS FCA||CFR CIF CPT CIP||DAP DAT DDP|
Which Mode of Transport is applicable for Incoterms ?
|Type of Transport Method||Incoterms 2010|
|Any Mode or Modes of Transport||EXW (Ex Works)|
|FCA (Free Carrier)|
|CPT (Carriage Paid To)|
|CIP (Carriage and Insurance Paid To)|
|DAT (Delivered at Terminal)|
|DAP (Delivered at Place)|
|DDP (Delivered Duty Paid)|
|Sea and Inland Waterway Transport Only||FAS (Free Alongside Ship)|
|FOB (Free on Board)|
|CFR (Cost and Freight)|
|CIF (Cost, Insurance and Freight)|