What is incoterms?
Incoterms (short for International Commercial Terms) are terms used in international contracts that detail the obligations of each party (exporter-seller and importer-buyer) when delivering the goods.
Incoterms were established by the International Chamber of Commerce as a set of optional rules which interpret the most common terms in international commercial transactions and reflect current practice in the international carriage of goods. Thanks to these, it is possible to define:
The distribution of costs: the seller knows up to which point in time and place he has to bear the costs arising from the contract of sale.
The transfer of risk: the buyer knows from which point in time and place the risks incurred by the goods during transport are borne by him.
The place of delivery of the goods: Incoterms indicate the exact place where the seller must leave the goods and the buyer must collect them.
Classification of Incoterms
The International Chamber of Commerce classifies Incoterms into four different categories depending on where the goods are delivered and what responsibilities the seller and buyer assume:
Group E: Direct delivery at departure
- EXW: Ex Works (agreed place). The seller makes the goods available to the buyer in its own warehouses.
Group F: No payment for main transport
- FCA: Free Carrier (agreed place). The seller undertakes to deliver the goods by making them available to the carrier appointed by the buyer at an agreed place.
- FAS: Free Alongside Ship (agreed port of loading). The seller undertakes to deliver the goods by placing them alongside the ship at the quayside at the agreed port of shipment.
- FOB: Free On Board (agreed port of loading). The seller makes the goods available to the buyer on board the ship at the appointed port of shipment.
Group C: With payment of the main transport
- CFR: Cost and Freight (agreed destination port). The seller pays the costs and freight necessary to bring the goods to the agreed port of destination.
- CIF: Cost, Insurance and Freight (agreed destination port). The seller has the same obligations as under CFR and also pays the insurance of the goods during transport.
- CPT: Carriage Paid To (agreed place of destination). The seller pays the freight for the transport of the goods to the agreed destination.
- CIP: Carriage and Insurance Paid to (agreed place of destination). The seller has the same obligations as under CPT, and also pays the insurance for the transport of the goods.
Group D: Direct delivery to the point of arrival
- DAT: Delivered at Terminal. The seller delivers the goods, once they have been unloaded from the means of transport used, and makes them available to the buyer at the terminal of the agreed-upon destination point.
- DAP: Delivered at Place. The seller must make the goods available to the buyer at the place agreed upon with the buyer, including all costs associated with the unloading of the goods from the means of transport used.
- DDP: Delivered Duty Paid (agreed place of destination). With the same obligations as under DAP, but in addition the seller pays the duties and taxes on the import of the goods.
This classification is updated periodically. The latest version of the Incoterms came into force on 1 January 2020.