Incoterms: an Introduction
Incoterms, short for "International Commercial Terms" are standard trade definitions devised and published by the International Chamber of Commerce (ICC). These terms are used in international sales contracts to clearly establish the basis on which the seller will invoice the buyer. The terms identify the additional costs, over and above the cost of the goods, which the seller can include in their invoice. Their use in sales contracts act as a form of legal shorthand to clearly identify the responsibilities of both parties.
The ICC introduced the first version of Incoterms in 1936. Since then, ICC expert lawyers and trade practitioners have updated them six times, the most recent being in the year 2010, to keep pace with the development of international trade. Everybody involved in international trade needs to be familiar with Incoterms if they are to be successful.
Incoterms Outlined
There are 13 different Incoterms and they have been grouped into 4 different categories.
Group 1 - The E Term (Departure)
EXW - Ex Works
This group has only one term (EXW).
Under this shipping term the seller provides the goods for collection by the buyer at the seller's own premises.
The buyer arranges insurance against damage to the goods in transit.
This term requires the least effort by the seller, but should not be used where the buyer cannot carry out export formalities.
Group 2 - The F Terms (Free, Main Carriage Unpaid)
FCA - Free Carrier FAS - Free alongside ship,
FOB - Free on Board
The seller must deliver the goods to a carrier appointed by the buyer and located in the seller's country.
The buyer arranges insurance against damage to the goods in transit.
Group 3 - The C Terms (Main Carriage Paid)
CFR - Cost and Freight CIF - Cost, Insurance and Freight
CPT - Carriage paid to CIP - Carriage and Insurance paid to
In this group the seller assumes the responsibility for the main contract of carriage.
These terms provide for the seller contracting for carriage on usual terms at his own expense.
In the terms CIF and CIP the seller arranges and pays for insurance against damage to the goods in transit.
Group 4 - The D Terms (Delivered/Arrival)
DAF - Delivered at Frontier DES - Delivered ex ship
DEQ - Delivered ex quay DDU - Delivered duty unpaid
DDP - Delivered duty paid
In this group the seller has to bear all costs and risks of bringing the goods to the country of destination.
The seller arranges and pays for insurance against damage to the goods in transit.
Where to get more information on Incoterms
All companies involved in international trade should possess a copy of the ICC's handbook on Incoterms 2000. A copy of the handbook can be purchased from the ICC via their website. In addition, the ICC has set up a specific website devoted to the Incoterms and a visit to this website will provide additional details on Incoterms.
Trade practitioners should consult the official ICC texts, and be cautious of unauthorised summaries and approximate versions that can be found on the Internet.
We have added both the International Chamber of Commerce and the Incoterms2000 websites to our Publications/Useful Sites page and would recommend they be used to find out more detailed information on the various Incoterms.
