The Incoterms® 2010: What You Should Know - Flegenheimer International

Overview

Incoterms are a fundamental element of international trade. They are incorporated in contracts for the sale of goods worldwide and provide rules and guidance to importers, exporters, suppliers, lawyers and transporters to name a few.
INternational COmmercial Terms (INCOTERMS) are published by the international Chamber of Commerce.

Why are they important?

Incoterms 2010 address the responsibilities and obligations of Buyer and Seller to each other regarding their export transaction. It further explains the transfer of risks. Incoterms also provides basis for dispute resolution.

What you must remember?

An Incoterm® is always followed by a “Named Place”. (e.g. DAP Boston Airport)

They should reflect the agreement between the Seller and the Buyer.

The following specific points should be addressed on a contract of Sale:

• Who pays customs clearances, who arrange payments to the carriers; loading and pre-inspection
• What happens if buyer or seller fails their obligations.

The duties connected to export and import clearance

The Incoterms rules are based on the main principle that the party best positioned to undertake the function to clear the goods and to pay duties and other costs in connection with export and import should do so. Thus,

• under all F-terms the seller should do what is necessary to clear the goods for export;
• under all C-terms the seller assumes the obligation with respect to export, and the buyer assumes the obligations with respect to import;
• under all D-terms, except DDP, the buyer should do what is necessary to clear the goodsfor import;
• under EXW the buyer has to assume the obligations with respect to export as well as import (this is an exception to the main principle that the exporter clears the goods for export, and follows from the nature of EXW to express the seller’s minimum obligation); and when there are no customs requirements, all of the Incoterms rules can be used withoutvariations, since the obligations relating to export and import clearance are relevant only “where applicable”.

Incoterms® for ALL Modes of Transport

These terms can be used even when there is no maritime transport at all. It is important to remember, however, that these rules can be used in cases where a ship is used for part of the carriage.
• EXW – ex-works

“Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e.,works, factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.

• FCA – free carrier

“Free Carrier” means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the point within the named place of delivery, as the risk passes to the buyer at that point.

• CPT – carriage paid to

“Carriage Paid To” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

• CIP – carriage & insurance paid to

“Carriage and Insurance Paid to” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.
‘The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”

• DAP – delivered at place

“Delivered at Terminal” means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. “Terminal” includes a place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination.

• DAT – delivered at terminal

“Delivered at Place” means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.

• DDP – delivered duty paid

“Delivered Duty Paid” means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities

Incoterms® for Sea and Inland Waterway Transport

The point of delivery and the place to which the goods are carried to the buyer are both ports, hence the label “sea and inland waterway” rules
• CIF – cost, insurance & freight

“Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.
‘The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”

• CFR – cost & freight

“Cost and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. the seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

• FAS – free alongside ship

“Free Alongside Ship” means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.

• FOB – free on board

“Free On Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.

The Incoterms® 2020 is currently in progress and being drafted by lawyers, traders and company representatives from around the world. The overall process may take at least two years.

To read the full guidance on Incoterms® 2010, please refer to the links below:

http://www.pdfdrive.net/icc-guide-to-incoterms-2010-halley-cables-d18124731.html

https://iccwbo.org/resources-for-business/incoterms-rules/incoterms-rules-2010/