Glossary


Terms & Glossaries of Shipping and Trading

Incoterms

Incoterms or international commercial terms are a series of international sales terms, published by International Chamber of Commerce (ICC) and are widely used in international commercial transactions. They are used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices. The first version was introduced in 1936 and the present dates from 2010.

What is Incoterms?

Incoterms or international commercial terms are a series of international sales terms, published by International Chamber of Commerce (ICC) and are widely used in international commercial transactions. They are used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices. The first version was introduced in 1936 and the present dates from 2010.

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Key takeaways:

Incoterms, widely-used terms of sale, are a set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.

Incoterms were updated for 2020 and although only one term changed, there are notable differences in security costs.

The terms are standardized but certain buyers and sellers will prefer individual terms over others. As such, which terms will be used is a matter of negotiation.

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 the differing interpretations of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide.

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Rules for any mode of transport:

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

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

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

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

5.DPU – Delivered At Place Unloaded (named place of destination)

6.DAP – Delivered At Place (named place of destination)

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

Rules for sea and inland waterway transport

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

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

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

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

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The latest revision’s changes:

The most obvious change from Incoterms 2010 is renaming the term Delivered at Terminal (DAT) to Delivered at Place Unloaded (DPU).

The most significant change from the 2010 rules relates to the term Free Carrier (FCA). Under this term, the buyer can now instruct its carrier to issue a bill of lading with an on-board notation to the seller so that they may satisfy the terms of a letter of credit.

Under the revised term CIP, the seller is now responsible for purchasing a higher level of insurance coverage—at least 110% of the value of the goods as detailed in Clause A of the Institute Cargo Clauses. The insurance requirement hasn't changed for CIF.

Incoterms 2020 rules recognize sellers who may use their own transport to deliver the goods. The terms now expressly state that sellers can make a contract for carriage or simply arrange for the necessary transportation.

Incoterms 2020 rules now specifically call out the import and export security requirements and identify whether the buyer or seller is responsible for meeting those requirements.