Incoterms 2010 is the eighth set of pre-defined international contract terms published by the International Chamber of Commerce, with the first set having been published in 1936. Incoterms 2010 defines 11 rules, down from the 13 rules defined by Incoterms 2000. Four rules of the 2000 version ("Delivered at Frontier", DAF; "Delivered Ex Ship", DES; "Delivered Ex Quay", DEQ; "Delivered Duty Unpaid", DDU) were removed, and are replaced by two new rules ("Delivered at Terminal", DAT; "Delivered at Place", DAP) in the 2010 rules.
In the prior version, the rules were divided into four categories, but the 11 pre-defined terms of Incoterms 2010 are subdivided into two categories based only on method of delivery. The larger group of seven rules may be used regardless of the method of transport, with the smaller group of four being applicable only to sales that solely involve transportation by water where the condition of the goods can be verified at the point of loading on board ship. They are therefore not to be used for containerized freight, other combined transport methods, or for transport by road, air or rail.
Incoterms 2010 also formally defined delivery. Before, the term has been defined informally but it is now defined as the point in the transaction where the risk of loss or damage to the goods is transferred from the seller to the buyer.
RULES FOR ANY MODE OF TRANSPORT
EXW – Ex Works (named place of delivery)
"Ex Works" means the seller is not responsible for transportation beyond having it available for pick up at the factory or the seller's depot. This places virtually all shipping responsibilities and costs on the buyer, and that the seller won't even load your shipment.
It typically works best for domestic shipping only, because the seller is needed for the customs clearance processes.
FCA – Free Carrier (named place of delivery)
"Free Carrier" puts a little more of the responsibility and cost on the seller than EXW. In this instance, the seller will arrange for pre-transport to the place of the buyer's choice, prior to export, which could include a warehouse, transportation hub, like an ocean port or airport.
The buyer is responsible for actually unloading it off of the pre-transport vehicle if there is just one carrier for the entire shipment. If there are more, it will stay with the seller until unloaded.
This is better for international trade than EXW, and actually my personal preference for most cross-border and overseas shipments. The seller is going to be responsible for export clearance, while giving the buyer control as soon as it arrives at the shipping port. In addition, the buyer will have total control of the shipment once it arrives at the departure point, which is a very good thing.
CPT – Carriage Paid To (named place of destination)
"Carriage Paid To" is very similar to FCA. The seller is responsible for getting the shipment through pre-transport, and they are the one actually contracturally and financially responsible for its shipment to the destination port. The buyer takes on the burden of risk once it arrives to the shipping port, but don't contract with the carriers, so they're the ones to buy cargo insurance.
CIP – Carriage and Insurance Paid to (named place of destination)
Carriage and Insurance Paid To" is exactly like CPT, except that the seller will pay for the insurance up until the destination hub.
CIP can be used for all modes of transport, whereas the Incoterm CIF should only be used for non-containerized sea-freight.'
DAT – Delivered At Terminal (named terminal at port or place of destination)
"Delivered at Terminal" means that the seller is responsible for all shipping arrangements, financial obligations, and insurance coverage up until it arrives at the terminal. This can be anything from a transportation depot to a warehouse.
In this instance, the seller is responsible for unloading, and risk transfers to the buyer as soon as that's done. The buyer is going to be responsible for all costs associated with import clearance, taxes, etc.
DAP – Delivered At Place (named place of destination)
"Delivered at Place" is nearly identical to DAT, except that the buyer is responsible for unloading, so the risk is transferred to them right before that happens.
DDP – Delivered Duty Paid (named place of destination)
"Delivered Duty Paid" means that the seller will get the goods to the arrival port, and the buyer doesn't take responsibility until they've gone through customs, all duties have been paid, and the shipment is cleared to unload.
This one isn't my favorite, because that puts too much responsibility on the seller, in my opinion. It's better to have somebody local to deal with customs, because they'll be able to better navigate through any challenges that may arise.
RULES FOR SEA AND INLAND WATERWAY TRANSPORT
To determine if a location qualifies for these four rules, please refer to 'United Nations Code for Trade and Transport Locations
The four rules defined by Incoterms 2010 for international trade where transportation is entirely conducted by water are as per the below. It is important to note that these terms are generally not suitable for shipments in shipping containers; the point at which risk and responsibility for the goods passes is when the goods are loaded on board the ship, and if the goods are sealed into a shipping container it is impossible to verify the condition of the goods at this point.
Also of note is that the point at which risk passes under these terms has shifted from previous editions of Incoterms, where the risk passed at the ship's rail.
FAS – Free Alongside Ship (named port of shipment)
As soon as the shipment arrives to the departure port and is sitting alongside the vessel, it is considered delivered, and the buyer assumes logistic and financial responsibility and risk from that point forward.
This is helpful when moving things like heavy machinery or equipment like oversized tractors - things that don't end up in containers.
FOB – Free on Board (named port of shipment)
CFR – Cost and Freight (named port of destination)
"Cost & Freight" is similar to FOB in the sense that the seller is responsible for the costs and risks of getting the shipment to and aboard your vessel, even clearing it for export. Also, risk and insurance costs transfer at this point to the buyer.
The difference is that the seller pays for the main transport costs even though the buyer assumes responsibility before setting sail.
CIF – Cost, Insurance & Freight (named port of destination)
SELLER'S PAYMENT RESPONSIBILITY
For a given term, "Yes" indicates that the seller has the responsibility to provide the service included in the price. "No" indicates it is the buyers responsibility. If insurance is not included in the term (for example, CFR) then insurance for transport is the reponsibility of the buyer.
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