When traders conclude a contract for the purchase and sale of goods, they are entitled to freely negotiate specific conditions regarding price, quantity, characteristics, etc., as well as transport, risks, transfer of risk, and handover of goods. However, companies active in foreign trade are frequently confronted with different interpretations of identical formulas and national trade customs. To counter the resulting uncertainties, contracting parties can make use of so-called Incoterms®, which offer a series of international rules for the interpretation of primarily used contract forms. Specifically, the Incoterm agreed upon by the partners determines which party pays for the respective costs in the transport chain, is responsible for loading/unloading and customs clearance of the goods, and bears the risk of loss at any point in international (and meanwhile also national) shipping. Furthermore, Incoterms® also affect the customs valuation basis of the imported goods.
Incoterms® 2000
CFR – CIF – CIP – CPT – DAF – DEQ – DES – DDP – DDU – EXW – FAS – FCA – FOB
Incoterms® 2010
CFR – CIF – CIP – CPT – DAT – DAP – DDP – EXW – FAS – FCA – FOB
The INCOTERMS® (International Commercial Terms) are developed by the International Chamber of Commerce (ICC) in Paris and are observed by the world’s most significant trading nations. The three-letter clauses regulate the essential obligations of the buyer and seller in an internationally uniform manner. This is particularly important in cross-border transactions, as misunderstandings in the execution of legal transactions can be largely avoided in this way.
The use of Incoterm clauses is now also possible for national contracts. In addition to the previous grouping of INCOTERM® clauses into four groups (E, F, C, D), the INCOTERMS® 2010 now feature a further subdivision into two groups depending on the chosen mode of transport.
With the current version of INCOTERMS® 2010 (7th Revision), which came into force on January 1, 2011, the original revision of the INCOTERMS 2000 version was overhauled and adapted to current developments in trade practice. In this context, the number of Incoterms® was reduced from 13 to 11 by removing some obsolete clauses (DAF, DES, DEQ, and DDU) and adding new clauses (DAT, DAP).
- Specific clauses exclusively for sea and inland waterway transport: FAS, FOB, CFR, CIF
- General clauses for all other and also multimodal transport: EXW, DAT, DAP, DDP, CPT, CIP, FCA
Below, all 11 currently used Incoterms® 2010 as well as the older version of Incoterms® 2000 consisting of 13 Incoterm rules are listed and explained in order of increasing responsibility of the seller. The use of these Incoterms® is voluntary and requires explicit contractual agreement (mentioning the desired version, e.g., Incoterms 2000 or 2010) to be legally effectively included in the contract. The Incoterms® most frequently used in practice are “Ex Works,” “Free on Board,” “Cost, Insurance and Freight,” and “Delivered Duty Paid.” A location must also be specified or agreed upon for every Incoterm. It should be noted that the term “Incoterms©” is a registered trademark of the International Chamber of Commerce.
Incoterms® 2000 Group E (Departure)
Ex Works (EXW)
Through the condition “Ex Works” (EXW), the seller minimizes their risks, as the goods are made available at their factory or place of business. The seller (exporter) makes the goods available to the buyer (importer) on the seller’s premises. As soon as the goods are purchased and leave the premises, the buyer bears the risk of loss and is also responsible for all transport costs, customs fees, and insurance costs. The “Ex Works” price includes neither the costs of loading goods onto a vehicle or ship nor customs clearance. If the customs valuation basis of the goods in the country of destination is “Free on Board” (FOB), the transport and insurance costs for moving the goods from the seller’s premises to the port of export must be added to the “Ex Works” price.
Incoterms® 2000 Group F (Main Carriage Unpaid by Seller)
Free Alongside Ship (FAS)
The seller transports the goods from their place of business, clears the goods for export, and places them alongside the ship at the port of export, where the risk of damage and loss transfers to the buyer. Unless otherwise agreed, the buyer is responsible for both loading the goods onto the ship and paying all costs incurred in shipping the goods to the destination.
Free Carrier (FCA)
The seller (exporter) clears the goods for export and hands them over to the carrier at the place designated by the buyer. If the place chosen by the buyer is the seller’s place of business, the seller must load the goods onto the transport vehicle; otherwise, the buyer is responsible for loading the goods. From this point on, the buyer assumes the risk of damage and loss of the goods and bears all costs for shipping and transporting the goods to the destination.
Free on Board (FOB)
The seller (exporter) is responsible for transporting the goods from their place of business to the port of export, loading them onto the ship, and clearing the goods for customs in the country of export. As soon as the goods are on the ship, the risk of damage and loss passes to the buyer (importer). From this point on, the buyer is responsible for all transport and insurance costs and must also clear the goods through customs in the country of import. If the customs valuation basis refers to “Cost, Insurance, Freight” (CIF), international freight and insurance costs must be added to the “Free on Board” (FOB) price. The Incoterm “Free on Board” (FOB) takes the form “FOB, Port of Export.” For example, if the port of export is Patras, the phrasing is “FOB, Patras.”
Incoterms® 2000 Group C (Main Carriage Paid by Seller)
Cost and Freight (CFR)
The seller (exporter) is responsible for transporting the goods from their place of business to the port of export, loading them onto the ship, customs clearance in the country of export, and paying international freight costs. The buyer assumes the risk of damage and loss as soon as the goods are on the ship. From this point on, the buyer must provide insurance coverage and subsequently bear the costs for unloading, customs clearance in the country of import, and transport of the goods to the destination. If the customs valuation basis refers to “Free on Board” (FOB), the international freight costs are to be deducted from the “Cost and Freight” (CFR) price.
Cost, Insurance, Freight (CIF)
The Incoterm “Cost, Insurance, Freight” (CIF) can only be used if the international carriage of goods takes place at least partially by water. The seller (exporter) is responsible for transporting the goods from their place of business to the port of export, loading them onto the ship, customs clearance in the country of export, and paying international freight costs, and must also bear the corresponding transport insurance in favor of the buyer (importer). The transfer of risk for damage and loss of the goods takes place upon the arrival of the goods on the ship. Should the goods be damaged or stolen during international transport, the buyer must assert their insurance claim based on the insurance taken out in their favor by the seller. The costs for customs clearance, transport, and insurance of the goods in the country of import must be borne by the buyer. If the customs valuation basis refers to “Free on Board” (FOB), the international insurance and freight costs are to be deducted from the “Cost, Insurance, Freight” (CIF) price. The Incoterm “Cost, Insurance, Freight” (CIF) takes the form “CIF, Port of Destination.” For example, if the goods are exported to the port of Piraeus, the phrasing is “CIF, Piraeus.”
Carriage Paid To (CPT)
The seller (exporter) clears the goods for export, hands them over to the carrier, and is responsible for the costs of transport to the place of destination. The transfer of risk takes place upon handover to the carrier. From this point on, the buyer must insure the goods. If the customs valuation basis refers to “Free on Board” (FOB), the international freight costs are to be deducted from the “Carriage Paid To” (CPT) price.
Carriage and Insurance Paid To (CIP)
The seller transports the goods to the port of export, clears them through customs, and hands them over to the carrier, whereby the risk of damage and loss of the goods transfers to the buyer. The seller is responsible for transport and insurance costs until the goods arrive at the agreed place of destination. From arrival there, the buyer is responsible for all costs and also bears the risk of loss. If the customs valuation basis refers to “Free on Board” (FOB), the international freight and insurance costs are to be deducted from the “Carriage and Insurance Paid To” (CIP) price.
Incoterms® 2000 Group D (Arrival)
Delivered At Frontier (DAF)
The seller (exporter) is responsible for all costs incurred until the goods are handed over at the named place at the frontier. The transfer of risk takes place at the frontier. The buyer must bear the risk and costs of unloading the goods, clear the goods through customs, and transport them to the final destination. If the customs valuation basis refers to “Free on Board” (FOB), the international insurance and freight costs are to be deducted from the “Delivered At Frontier” (DAF) price.
Delivered Ex Ship (DES)
The seller (exporter) is responsible for all costs incurred until the goods are handed over at the agreed port of destination. Upon arrival, the goods are available to the buyer (importer) on board the ship. This means that the buyer is responsible for all cost and loss risks arising from unloading the goods at the port of destination. The buyer (importer) must unload the goods, clear them through customs, pay duties, and arrange for inland transport and insurance to the final destination.
Delivered Ex Quay (DEQ)
The seller (exporter) is responsible for all costs incurred in transporting the goods to the quay of the port of destination. The buyer must pay duties, clear the goods through customs, and from this point on pay all costs and assume the risk of loss. If the customs valuation basis is “Free on Board” (FOB), the international insurance and freight costs along with the unloading costs are to be deducted from the “Delivered Ex Quay” (DEQ) price.
Delivered Duty Unpaid (DDU)
The seller (exporter) is responsible for all costs incurred until the goods are handed over at the named place of destination. At this location, the goods are made available to the buyer. At this time, the risk of damage and loss passes to the buyer (importer). Furthermore, the buyer must clear the goods through customs, pay duties, and procure inland transport and insurance coverage to the final destination.
Delivered Duty Paid (DDP)
The seller (exporter) is responsible for all costs incurred until the goods are handed over at the agreed place of destination. Under the conditions of the Incoterm® “Delivered Duty Paid” (DDP), the seller literally provides door-to-door transport, including customs clearance at the port of export and destination. The transfer of risk takes place at the time the goods are handed over to the buyer – usually on their premises. Consequently, the seller bears the entire risk of loss until the goods are handed over to the buyer on their premises. If the customs valuation basis refers to “Cost, Insurance, Freight” (CIF), the costs for unloading, customs clearance, inland transport, and insurance of the goods to the buyer’s premises in the country of destination are to be deducted from the “Delivered Duty Paid” (DDP) price. The Incoterm “Delivered Duty Paid” (DDP) takes the form “DDP, named place of destination.” For example, if goods imported via Patras are to be delivered to Athens, the phrasing is “DDP, Athens.”
B. Incoterms® 2010 (Current)
CFR – CIF – CIP – CPT – DAT – DAP – DDP – EXW – FAS – FCA – FOB
Incoterms® 2010 Group E (Departure)
Ex Works (EXW)
Through the condition “Ex Works” (EXW), the seller minimizes their risks, as the goods are made available at their factory or place of business. The seller (exporter) makes the goods available to the buyer (importer) on the seller’s premises. As soon as the goods are purchased and leave the premises, the buyer bears the risk of loss and is also responsible for all transport costs, customs fees, and insurance costs. The “Ex Works” price includes neither the costs of loading goods onto a vehicle or ship nor customs clearance. If the customs valuation basis of the goods in the country of destination is “Free on Board” (FOB), the transport and insurance costs for moving the goods from the seller’s premises to the port of export must be added to the “Ex Works” price.
Incoterms® 2010 Group F (Main Carriage Unpaid by Seller)
Free Alongside Ship (FAS)
The seller transports the goods from their place of business, clears the goods for export, and places them alongside the ship at the port of export, where the risk of damage and loss transfers to the buyer. Unless otherwise agreed, the buyer is responsible for both loading the goods onto the ship and paying all costs incurred in shipping the goods to the destination.
Free Carrier (FCA)
The seller (exporter) clears the goods for export and hands them over to the carrier at the place designated by the buyer. If the place chosen by the buyer is the seller’s place of business, the seller must load the goods onto the transport vehicle; otherwise, the buyer is responsible for loading the goods. From this point on, the buyer assumes the risk of damage and loss and bears all costs for shipping and transporting the goods to the destination.
Free on Board (FOB)
The seller (exporter) is responsible for transporting the goods from their place of business to the port of export, loading the goods onto the ship designated by the buyer, and clearing the goods for customs in the country of export. As soon as the goods are on board the ship, the risk of loss and damage passes to the buyer (importer). From this point on, the buyer is responsible for all transport and insurance costs and must also clear the goods through customs in the country of import. If the customs valuation basis refers to “Cost, Insurance, Freight” (CIF), international freight and insurance costs must be added to the “Free on Board” (FOB) price. The Incoterm “Free on Board” (FOB) takes the form “FOB, Port of Export.” For example, if the port of export is Patras, the phrasing is “FOB, Patras.”
Incoterms® 2010 Group C (Main Carriage Paid by Seller)
Cost and Freight (CFR)
The seller (exporter) is responsible for transporting the goods from their place of business to the port of export, loading them onto the ship, customs clearance in the country of export, and paying international freight costs. The seller must therefore conclude the contract of carriage and bear the costs and freight necessary to bring the goods to the named port of destination. The seller bears unloading costs if they are part of the shipping freight (e.g., a sea freight contract under so-called Liner Terms that includes loading, stowage, and unloading costs). The buyer assumes the risk of loss and damage as soon as the goods are on the ship. From this point on, the buyer must provide insurance coverage. If the customs valuation basis refers to “Free on Board” (FOB), the international freight costs are to be deducted from the “Cost and Freight” (CFR) price.
Cost, Insurance, Freight (CIF)
The Incoterm “Cost, Insurance, Freight” (CIF) can only be used if the international carriage of goods takes place at least partially by water. The seller (exporter) is responsible for transporting the goods from their place of business to the port of export, loading them onto the ship, customs clearance in the country of export, and paying international freight costs, and must also bear the corresponding transport insurance in favor of the buyer (importer). The risk of loss of or damage to the goods passes when the goods are on board the ship. However, the seller must obtain transport insurance at their own expense. Should the goods be damaged or stolen during international transport, the buyer must assert their insurance claim based on the insurance taken out in their favor by the seller. The costs for customs clearance, transport, and insurance of the goods in the country of import must be borne by the buyer. If the customs valuation basis refers to “Free on Board” (FOB), the international insurance and freight costs are to be deducted from the “Cost, Insurance, Freight” (CIF) price. The Incoterm “Cost, Insurance, Freight” (CIF) takes the form “CIF, Port of Destination.” For example, if the goods are exported to the port of Piraeus, the phrasing is “CIF, Piraeus.”
Carriage Paid To (CPT)
The seller (exporter) clears the goods for export, hands them over to the carrier, and is responsible for the costs of transport to the place of destination. The seller must therefore conclude the contract of carriage and pay the freight costs incurred for the carriage of the goods to the named place of destination. From this point on, the buyer must insure the goods. If the customs valuation basis refers to “Free on Board” (FOB), the international freight costs are to be deducted from the “Carriage Paid To” (CPT) price.
Carriage and Insurance Paid To (CIP)
The seller transports the goods to the port of export, clears them through customs, and hands them over to the carrier, whereby the risk of loss and damage passes to the buyer. The seller is responsible for transport and insurance costs until the goods arrive at the agreed place of destination. The seller also concludes an insurance contract against the buyer’s risk of loss of or damage to the goods during the carriage. From arrival there, the buyer is responsible for all costs and also bears the risk of loss. If the customs valuation basis refers to “Free on Board” (FOB), the international freight and insurance costs are to be deducted from the “Carriage and Insurance Paid To” (CIP) price.
Incoterms® 2010 Group D (Arrival)
Delivered Duty Paid (DDP)
The seller (exporter) is responsible for all costs incurred until the goods are handed over at the agreed place of destination. Under the conditions of the Incoterm® “Delivered Duty Paid” (DDP), the seller literally provides door-to-door transport, including customs clearance at the port of export and destination, and has the obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities. The transfer of risk takes place at the time the goods are handed over to the buyer – usually on their premises. Consequently, the seller bears the entire risk of loss until the goods are handed over to the buyer on their premises. If the customs valuation basis refers to “Cost, Insurance, Freight” (CIF), the costs for unloading, customs clearance, inland transport, and insurance of the goods to the buyer’s premises in the country of destination are to be deducted from the “Delivered Duty Paid” (DDP) price. The Incoterm “Delivered Duty Paid” (DDP) takes the form “DDP, named place of destination.” For example, if goods imported via Patras are to be delivered to Athens, the phrasing is “DDP, Athens.”
Delivered At Place (DAP)
According to this clause, the goods are deemed delivered by the seller as soon as they are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. All risks involved in bringing the goods to the named place are borne by the seller.
Delivered At Terminal (DAT)
According to the new DAT clause, which replaces the previous DEQ Incoterm 2000 clause, the goods are deemed delivered as soon as they are unloaded from the arriving means of transport and placed at the disposal of the buyer at a named terminal at the named port or place of destination. The clause applies as a general clause for any mode of transport. All risks involved in bringing the goods to and unloading them at the terminal at the named port or place of destination are borne by the seller.
(Status: Early 2013. Source: ICC Germany. All information is subject to change and provided without guarantee.)