International Chamber of Commerce Terms (INCOTERMS)
Trade terms developed by the International Chamber of Commerce define the method of delivery of goods sold and the responsibilities of the parties. They also determine the price of the merchandise. Incoterms are updated every ten years to make them adaptable to changes in global trade, technology and contemporary commercial practice. The latest term is Incoterms 2010.
Incoterms are a set of rules (not laws). However, when the parties agree to be governed by it, it takes the force of law. It is important to note that Incoterms do not deal with transfer of title, exemptions from liability or issues pertaining to breach of contract.
Classification of 11 Incoterms
|Group||Used for any mode of transport||Used for water transport|
Seller makes the goods available to buyer at seller’s own premises
This entails maximum obligation to the buyer.
Delivery (transfer of risk) takes place when seller places goods at the buyer’s disposal at the seller’s place of business or another named place. Seller not required to load goods.
|Group F— Main carriage unpaid
Seller is required to deliver goods to carrier appointed by buyer
|FCA (free carrier)
Delivery takes place when seller delivers goods to carrier nominated by buyer at the named place.
Seller responsible for loading only if delivery occurs at the seller’s premises.
|FAS (Free alongside ship)
Delivery and transfer of risk from seller to buyer occurs when goods are placed by seller alongside the vessel at the named port of shipment.
FOB (Free on Board)
Delivery and transfer of risk from seller to buyer occurs when goods are placed on board the vessel at the named port of shipment.
|Group C—Main carriage paid
Seller contracts for carriage but does not assume liability for any risk to merchandise during transit
|CPT (carriage paid to)
Seller pays freight to buyer’s destination. Seller to deliver goods to carrier (nominated by seller)
CIP (Cost, insurance paid to)
Seller pays freight and insurance (minimum coverage in line with cargo clause C covering loss or damage during transportation) to the named destination. Delivery is complete when seller delivers goods to carrier (nominated by seller)
|CFR (Cost and freight)
Delivery and transfer of risk from seller to buyer occurs when goods are placed on board the vessel at the named port of shipment. Seller pays for freight.
CIF (Cost, insurance and freight)
Delivery and transfer of risk from seller to buyer occurs when goods are placed on board the vessel at the named port of shipment. Seller pays for freight and insurance.
|Group D— Arrival
Seller bears cost and risk to deliver goods to the buyer at the buyer’s destination
|DAT (Delivered at terminal)
Delivery and transfer of risk occurs when Seller delivers goods to buyer at named terminal, yard or warehouse (offloaded) at named place of destination. Customer responsible for customs clearance, duties and taxes.
DAP (Delivered at place)
Similar to DAT. Buyer responsible for unloading at the named place of destination.
DDP (Delivery duty paid)
This entails maximum obligation to seller). Similar to DAP but Sellers bears the costs and risks of delivering the goods to buyer’s destination including import duties and taxes.