Understanding Incoterms 2010

Understanding Incoterms 2010

 

Incoterms are an internationally recognized set of terms that define the responsibilities and obligations of the parties involved in the transport of goods.  Incoterms are used to clearly communicate the division the cost of carriage and risks associated with the international transportation and delivery of goods between the seller to the buyer.

It is important to note that the Incoterms of a contract for sale pertain only to the delivery terms (carriage freight costs) and insurability of the product.  Incoterms do not address the transfer of title and will not apply to the terms of the insurance contract or to the terms of financing.  Incoterms also will not address the consequences of a breach of contract or exemptions of liability.

The International Chamber of Commerce (ICC) developed Incoterms in 1936 and updates them periodically to conform to changing trade practices.  As the ICC has announced plans to update the Incoterms again in 2020, contracts should specify the version of Incoterms used (e.g., Incoterms 2010 (the most recent version)).

Glossary of Incoterms 2010

In 2010, the two main categories of Incoterms were updated and classified by mode of transport.

Group 1:  Any Mode of Transport

(EXW) Ex Works

This term represents the seller’s minimum obligation, as the seller only has to make the goods available at its location.  The seller does not load the goods on the collecting vehicle and does not clear the goods for export.  The buyer bears all the costs for transportation, export and import duties, and cargo insurance, as well as the risks of bringing the goods to their final destination.  The buyer also carries out all customs formalities.

 

(CIP) Carriage and Insurance Paid To

The seller pays for the carriage and cargo insurance to the named place of destination and clears the goods for export.  The risk passes to the buyer when the goods are loaded on the vessel.  The buyer is responsible for all import formalities. 

 

(CPT) Carriage Paid To

The seller pays for the carriage to the named place of destination and clears the good for export.  The buyer procures and pays for cargo insurance and is responsible for all import formalities.

 

(DAP) Delivered At Place

The seller pays for carriage to the named place of destination and assumes all risks until the goods are ready for unloading by the buyer.  The buyer is responsible for all costs related to import clearance.

 

(DAT) Delivered At Terminal

The seller pays for carriage to the named place destination (terminal, port, or warehouse).  The seller assumes all risks until the goods are unloaded.  The buyer is responsible for all costs related to import clearance.

 

(DDP) Delivered Duty Paid

This terms represents the maximum obligation to the seller.  The seller is responsible for delivering the goods to 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 for export and import and to carry out all customs formalities, including the payment of all duties, taxes and customs fees.

 

(FCA) Free Carrier

The seller delivers the goods to the carrier and clears the goods for export.  Once the goods have been delivered to the carrier, the buyer takes over all the costs and risks.  The buyer is responsible for procuring and paying for cargo insurance and all import formalities.

Group 2:  Ocean and Inland Waterway Transport

(CFR) Cost and Freight

The seller arranges transportation and pays for the goods to be delivered to the named port of destination.  The seller is responsible for clearing the goods for export.  As the risk of loss of or damage to the goods passes to the buyer when the goods are loaded on board the vessel, the buyer is responsible for procuring and paying for the cargo insurance.  The buyer is responsible for all import formalities.

 

(CIF) Cost, Insurance and Freight

The seller arranges transportation and pays for the goods to be delivered to the named port of destination and is responsible for procuring and paying for the cargo insurance.  The seller must clear the goods for export.  The risk of loss of or damage to the goods passes to the buyer when the goods are loaded on board the vessel.  The buyer is responsible for all import formalities.

 

(FAS) Free Alongside Ship

The seller delivers the goods alongside the vessel at the named port of shipment and is required to clear the goods for export.  The risk of loss of or damage to the goods passes to the buyer when the goods are alongside the vessel.  The buyer bears all costs from that moment forward and is responsible for procuring the cargo insurance and carrying out all import formalities.

 

(FOB) Free On Board

The seller delivers the goods to the vessel nominated by the buyer, loads the goods on board the ship, and clears the goods for export.  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 onward, including cargo insurance.  The buyer is responsible for all import formalities.

 

Incoterms 2010 Responsibility Matrix

Obligations of Importer (Buyer) and Exporter (Seller)

EXW FCA
Loaded
FCA
Not Loaded
FAS FOB CFR CIF CPT CIP DAT DAP DDP
Service Any Mode of Transport Any Mode of Transport Any Mode of Transport Ocean Only Ocean Only Ocean Only Ocean Only Any Mode of Transport Any Mode of Transport Any Mode of Transport Any Mode of Transport Any Mode of Transport
Export Packaging Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
Export Formalities Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
Loading at Point of Origin Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
Inland Freight Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
Port Receiving Fee Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
Forwarders Fee Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
Int’l Freight Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller
Foreign Port / Airport Fees Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Seller
Customs Clearance Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller
Customs Duties Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller
Delivery Charges to Final Destination Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller