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Incoterms

The Incoterms rules or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) that are widely used in International commercial transactions or procurement processes. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods.

The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide.

First published in 1936, the Incoterms rules have been periodically updated at 1953, 1967, 1976, 1980, 1990, 2000, 2010 with the last version— Incoterms 2020.

Below are short descriptions of the 11 rules from the Incoterms® 2020 edition.

Rules for any mode or modes of transport
  • 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 And 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.”
  • DAT (Delivered At Terminal) “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.
  • DAP (Delivered At Place) “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.
Rules for sea and inland waterway transport
  • 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.
  • CFR (Cost and 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.
  • CIF (Cost, Insurance and 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.”
Terms for any mode of transport
CIP – Carriage and insurance paid to
DAT – Delivered at terminal
DAP – Delivered at place
DDP – Delivery duty paid
EXW – Ex works
FCA – Free carrier
Using Incoterms 2000 Terminology
‘There is nothing that would prevent you from for example using DDU, as long as you and the seller agree that the shipment is DDU [location], Incoterms 2000. The agreement between you and the seller prevails, and if you both agree, there is no reason to not use it. Incoterms 2000 should appear on the contract between Buyer and Seller.
Incoterms rules are not law, that is, they are not mandatory. They are a set of guidelines designed by the International Chamber of Commerce for companies involved in international trade, but no one is mandated to use them. It’s just much more convenient to use them than to negotiate international terms of trade for each shipment.
The issue with the use of an “old” Incoterm is that, should a dispute arise between the two of you, then the ICC may decline to arbitrate the dispute. I am not sure how long the ICC will still be willing to arbitrate a problem arising under the DDU shipment (or any other 2000 Incoterm rule), but I don’t think that they would stop on January 1, 2011. Even if they actually did, you should have no problem finding an arbitrator familiar with DDU to settle the issue.’
N.B. Please note that transfer of the freight costs obligation and transfer of risk do not occur at the same time.

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