– About Incoterms®

Incoterms® 2010– INternational COommercial TERMS

Incoterms® 2010 is international and domestic commercial contract terms, also called Incoterms® rules. They are published by the International Chamber of Commerce (ICC). The first version was published in 1936. Incoterms® 2010 is the current version and consists of 11 rules and Incoterms® is a registered trademark of the ICC. The Incoterms® 2010 came into effect 1st January 2011.
Incoterms® main purpose is to reduce or remove uncertainties arising from different interpretation of trade terms, as there are numerous definitions around the world, e.g. of the FOB term, among others. The Incoterms® rules are incorporated into sales contracts worldwide, an sometimrs also into Transport Contracts when the parties want to show whether it is the Seller or the Buyer who is responsible for arranging and pay for the carriage (transport), and who (among Seller an Buyer), who has the risk for the goods during the transport.

This is due to the fact that the (main) purpose of Incoterms® is to establish between Seller and Buyer who has the risk of damage to, and/or loss of the goods, and also who has to:
– Pay the transport/shipping costs (the Carriage)
– Pay for the loading/unloading
– Do the customs-, and export/import clearance
– Procure Cargo Insurance etc.

The rules have been developed by legal experts as well as practitioners from the international business community such as Forwarders, Carriers, Cargo Insurance Specialists, Consultants etc. The work has been organized by ICC and within their Commission of Commercial Law and Practice. The Incoterms® rules have really become The standard Trade Terms in international business.
The Incoterms® rules are accepted and daily used by ‘everyone’, like UN, Governments, Lawyers, legal authorities and practitioners worldwide. In Norway, for instance, the current Sale of Goods Act, has no longer any trade term definitions, but merely refers to what the parties has agreed upon, i.e. the relevant Incoterms® rule.
The Incoterms® 2010 are grouped into two main groups based on method of transport.

The first group of 7 rules may be used for any mode of transport.
The second group of 4 rules being applicable only to sales where the main carriage involves transportation by sea or inland waterways like rivers and canals.
In the second group the condition of the goods can be established at the loading point at the quay or onboard the vessel in the port of shipment. This group is not suitable for containerized freight as in practice it is difficult to establish both the condition and quantity of the goods inside a sealed and locked container

Group #1 (usable for any method of Carriage)

1.EXW – Ex Works (named place of loading)

In EXW the Seller has to make the goods available for the Buyer or his Carrier, at the Seller’s premises. EXW places the maximum obligation on the Buyer as Seller’s only obligation is to have the contracted goods available for the Buyer at the named place at the agreed date/time. From then on all obligations are on the Buyer who has to:
– Load the goods onto his collecting Carrier
– Bear all the risk for loss of, damage to and delay of the goods from the agreed date/time
– Procure transport/shipping documents as well as the export (customs) clearance.

2. FCA – Free Carrier (named place of delivery)

In FCA the Seller delivers the goods, cleared for export, to Buyer’s Carrier, or to a named place (e.g. a terminal), – nominated by the Buyer.

If the named place is Seller’s premises the Seller has to arrange and bear both the cost and risk for the loading operation onto Buyer’s collecting Carrier.

If the name place is any other then Seller’s premises (e.g. a terminal or an agent), both the cost and risk passes to the Buyer when Seller’s Carrier arrives at this named place, but before unloading there.

3. CPT – Carriage Paid To (named place of destination)

In CPT the Seller pays for the carriage of the goods to the named place of destination. However the risk passes to the Buyer at practically the same place as in FCA, namely when handing over the goods to the first Carrier in the country of Export. The Seller has to pay all transport related costs to the named place.
The C rules in Incoterms® do not regulate who is responsible for the discharging at the named place. This is regulated in the contract of carriage between the Seller and the Carrier. Every task that is part of and included in the contract of carriage, e.g. unloading costs, is therefore Seller’s obligation.

4. CIP – Carriage and Insurance Paid to (named place of destination)

The CIP is identical to the CPT rule, apart from that the Seller has to obtain Cargo Insurance (for the benefit of the Buyer), up to the named place. Discharge costs: See the CPT rule above.

The Buyer has to bear in mind that the Seller is only required to obtain insurance on minimum cover (C-clause), as of the London Institute Cargo Clauses or any similar local set of clauses.

5. DAP – Delivered at Place (named place of destination)

The DAP has replaced the old DDU-term in Incoterms 2000, and also include the old DAF and DEQ clauses. Here the Seller bears all risk and cost until the named place in Buyer’s country, – not unloaded. The Buyer has to do the import (customs) clearance.

6. DAT – Delivered at Terminal (named terminal at port or place of destination)

The DAT is identical to the DAP, apart from that Seller has to discharge the arriving Carrier at the named place. The word Terminal is only used to show that unloading is included (as contrary to the DAP- rule), but includes every destination place whether this is actually a Terminal, or a Quay, or a Warehouse or an Airport or a Shop etc.

7. DDP – Delivered Duty Paid (named place of destination)

The DDP is identical to the DAP apart form that the Seller also has to do the import (customs), clearance. However, the VAT is included and should be specifically excluded in the contract if the Sellers is not to pay the import VAT, (e.g. DDP London, VAT excluded, Incoterms ® 2010).

Group #2 (usable for sea or inland waterways)

8. FAS – Free Alongside Ship (named port of shipment)

In FAS, which is very similar to the FCA rule, the Seller has to place the goods alongside the Buyer’s vessel at the named port of shipment. The FAS rule requires the Seller to clear the goods for export.

9. FOB – Free on Board (named port of shipment)

In FOB (which is similar to FCA), the Seller pays for the loading of the goods until it is on board the vessel. The risk passes from the Seller to the Buyer when the goods have been loaded on board the vessel. In Incoterms 2000 the ship’s rail was the risk point for both FOB, CFR and CIF. Now all 3 rules have the risk point after the goods have been safely loaded on board the vessel.

10. CFR – Cost and Freight (named port of destination)

The CFR rule is the equivalent marine rule of the CPT. Here also the Seller pays for the carriage of the goods to the named destination port, but the Risk transfer is when the goods have been loaded on board the ship. Discharge costs: See the CPT rule above.

11. CIF – Cost, Insurance & Freight (named port of destination)

The CIF rule is identical to the CFR rule, apart from that the Seller has to obtain Cargo Insurance (for the benefit of the Buyer), up to the named place. Discharge costs: See the CPT rule above.

The Buyer has to bear in mind that the Seller is only required to obtain insurance on minimum cover (C-clause), as of the London Institute Cargo Clauses or any similar local set of clauses.
If the buyer wants to take out Cargo Insurance with his own Underwriter, the CFR og CPT rules should be used, rather then the CIF og CIP. Quite often the Seller is not willing to change the contract to CFR or CPT, but the Buyer can still Insure with his own Underwriter, although this results in the goods having “double” Insurance. In this way the Buyer also can take out Cargo Insurance on All Rsik (A) – Cover and include any additional Cover he may require.