What are Incoterms used For?

Incoterms are a set of pre-defined international rules, published by the International Chamber of Commerce, which determine the contractual clauses to be used in international commercial sales contracts.

Incoterms determine

  • Who is responsible for costs (who pays each part of the international transport)
  • When risk is exchanged between the seller and the buyer during the transportation of the goods (who is responsible at any given time)
  • The delivery location (provided to the seller)
  • Who hires and pays for the transportation required
  • Who hires and pays for the insurance used
  • The handling and cost of each necessary document

The 8th and current version of Incoterms, Incoterms 2010, was published on January 1st 2011 and defines 11 rules, two less than the 13 used in the previous Incoterms 2000.
In the current version, Incoterms are divided into four groups (E, F, C and D), depending on the delivery location of the goods and the responsibility for payment at different stages of the international transport.
Furthermore, within groups F and C, Incoterms are divided between those which are specific to maritime transport only (FAS, FOB, CFR and CIF) and those that can be used with any kind of transport (FCA, CPT and CIP).

GROUP E

The buyer is responsible for collecting the goods at the seller’s warehouse and bears all associated risk and cost.

Incoterm EXW (Ex-Works)

GROUP F

The seller is responsible for bringing the goods to the buyer’s predefined transport medium; the buyer then accepts cost and risk responsibility from that point on.

  • Incoterm Incoterm FCA (Free Carrier, any means of transport)
  • Incoterm FAS (Free Alongside Ship, exclusive to shipping)
  • Incoterm FOB (Free on Board, exclusive to shipping)

GROUP C

The seller bears all costs of transporting goods to the destination port (including international transport) however, risk transfer will be made once the goods are loaded onto the carrier.

  • Incoterm CPT (Carriage Paid to, any means of transport)
  • Incoterm CIP (Carriage and Insurance Paid to, any means of transport)
  • Incoterm CFR (Cost and Freight, exclusive to shipping)
  • Incoterm CIF (Cost, Insurance and Freight, exclusive to shipping)

GROUP D

The seller bears all risks and costs necessary to bring the goods to the destination country.

  • Incoterm DAT (Delivered at Terminal)
  • Incoterm DAP (Delivered at Place)
  • Incoterm DDP (Delivered Duty Paid)

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