INCOTERMS – 2010

Antara Zareen
BIBM

Purpose, History and Definition

Incoterms are generally accepted commercial terms defining the respective roles and
responsibilities of the buyer and seller in arrangement of transportation and other
obligations. These are also referred as Terms of Sale. These are standard trade definitions,
most commonly used in international sales/purchase contracts and assisting buyers and
sellers to understand each other’s expectations and responsibilities. These are devised,
published and modified by the International Chamber of Commerce (ICC). The terms are
abbreviated in a three letter format always in English and typically quoted with a specific
geographic location of delivery. These provides a clear, universal set of standards for
multi-lingual, multi-cultural, “multi-legal” usage--very practical and based on business
practices (not legal principles and abstract ideas) and specifies which party -- either the
seller or the buyer -- has the obligation (to arrange and cover any costs) for (transport)
carriage, (cargo) insurance, and (trade) compliance. These are protected by ICC copyright
and reviewed in every 10 years regularly to keep pace with the ever-changing world of
international trade. Contrary to a law or an international convention, Incoterms are not
compulsory rather automatic reflecting how costs and risks are segregated amongst the
buyer and seller. . If the parties want to apply these terms in their transactions, they must
expressly and specifically mention it in the contract. The parties are also allowed to
modify these depending upon the requirement of the trade transaction which should be
explicitly written in the contract. The first set of Incoterms was published way back in
1936. The evolution of trade practices has compelled ICC to come up with several
revisions in 1953, 1967, 1976,1980,1990,2000 and lastly in 2010 covering the latest
developments in the international arena. Versions of Incoterms preceding the latest
revised version of 2010 could still be incorporated in the future trade contracts depending
upon the requirement of the parties, but this is not recommended as the latest version is
designed to address the ever changing needs of the dynamic trade practices as well as for
harmonization. The latest version (8th revision since 1936) of Incoterms 2010 was
published in September, 2010 and it’s effective from 01.01.2011.and could be applied for
both domestic and international transactions.

A SET OF STANDARDIZED GUIDELINES THAT PARTIES IN DIFFERENT

COUNTRIES (AND DIFFERENT LEGAL ENVIRONMENTS) USE FOR
STRUCTURING THE LOGISTICAL ELEMENTS OF SELLING AND BUYING
GOODS.GENERALLY IMPLIES HOW GOODS ARE DELIVERED FROM
EXPORTERS TO IMPORTERS, WHO BEARS COST OF TRANSPORTATION,
WHO BEARS RISK OF TRANSPORTATION ETC.

Contract of Carriage
The Incoterms, used in a transaction will dictate which party is responsible for each
transportation segment and its corresponding contract of carriage. It also can affect the
title of the goods in foreign trade. As a general rule, Pre-Carriage, Main-Carriage and
On-Carriage should be utilized in connection with the Incoterms.

81
Pre-Carriage: the transportation segment from the seller’s location to the point where
the cargo would leave from the seller’s side. Example-to arrange for pre-carriage, the
trader /C&F agent would contract with an inland carrier to make delivery to a port or
air/sea/land port in the exporting country.
.
Main-Carriage: the transportation segment from the seller’s side to the buyer’s side.
Example-to arrange for main-carriage, the trader /C&F agent would contract for ocean or
air carriage from the port of shipment (exporting country) to the port of destination
(importing country).

On-Carriage: the transportation segment from the point of arrival (on the buyer’s side),
to the designated ultimate receiver. Example-to arrange for on-carriage, the trader /C&F
agent would contract with an inland carrier to make delivery from the port/airport of
arrival to the ultimate receiver within the importing country.

Incoterms 2010
The latest revised version Incoterms 2010 considered developments in the logistic
(transport) and insurance industries covering issues such as cargo security, replacing
paper documents with electronic presentation of documents (in the spree of digitization of
documents).The following terms from Incoterms 2000 have been deleted from the list–
DAF
DES
DEQ
DDU
Two new terms have been added to the list-
DAP
DAT
While Incoterms 2000 had 4 categories, Incoterms 2010 has got only 2 groups depending
upon on the Mode of Transportation.

THERE ARE ELEVEN THREE LETTERED INCO-TERMS DIVIDED INTO

TWO BROAD GROUPS.
Incoterms – 11 Terms

Rules for Any Mode of Transport

EXW - Ex Works (.... named place)
FCA – Free Carrier (... named place)
CPT – Carriage Paid To (…named place of destination)
CIP – Carriage and Insurance Paid To (…named place of destination)
DAP - Delivered At Place (…named place of destination)
DAT- Delivered At Terminal (…named place of destination)
DDP – Delivered Duty Paid (... named place of destination)

Rules for Maritime/Sea and Inland Waterway Transport Only

FAS -Free Alongside Ship (... named port of shipment)
FOB– Free On Board (... named port of shipment)
CFR- Cost and Freight (... named port of destination)
CIF – Cost, Insurance and Freight (... named port of destination)
82
In addition to these changes, Incoterms 2010 includes-
 Extensive guidance notes and illustrative graphics to assist users in selecting right
term for each transaction
 New classification has been done with a view to choosing most appropriate terms
related with MOT
 Advices related with electronic procedures
 Information on security related clearances for shipments
 Suggestions for using these terms also in domestic trade

Terms covered by Incoterms

 Warehousing
 Packing and loading
 Inland freight
 Terminal charges
 Freight forwarder’s fees
 Ocean/air freight
 Duty, taxes, & customs clearance
 Delivery
 String sales
 Security Clearances (new to 2010)

Incoterms – EXW Ex Works (.... named place)

The seller’s obligation is fulfilled when the buyer has been notified, and the goods.
(suitably packed for export) are available to the buyer, at the named place within the time
specified.
The buyer is responsible for all costs and risks, including the loading of the goods from
the named/specified point.
The buyer is responsible to arrange the entire contract of carriage of the goods (pre-
carriage, main-carriage, on-carriage).
The buyer is responsible for the export clearance of the goods. This term should not be
used when the buyer cannot carry out the export formalities directly or indirectly.
The buyer is responsible for the import clearance of the goods.

Incoterms – FCA Free Carrier (.... named place)

Seller’s obligation ends when they delivers the goods, cleared for export, to the carrier
(any mode of transport) nominated by the buyer at the named place.
The buyer must contract at his own expense the carriage of the goods from the named
place.
However, if it is requested by the buyer or if it is commercial practice and they buyer
does not give instructions to the contrary in due time, the seller may contract for carriage
at the buyer’s risk and expense.
Buyer must clear the goods for import.

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

Seller’s obligation and risk to deliver the goods alongside the vessel at the named port of
shipment.
Seller must clear the goods for export.
83
Term used for sea or inland waterway transport only.
Buyer is responsible for all costs and risks to transport the goods to the destination once
cargo is delivered alongside the vessel.
Buyer bears all additional costs as a result of vessel delay or refusal of goods for loading.
Buyer must clear the goods for import at final destination.

Incoterms – FOB Free On Board (... named port of shipment)

The seller’s obligation is fulfilled when the buyer has been notified and the goods have
passed over the ship’s rail on board the vessel, at the named port. (technically, the seller
would be responsible for Port Terminal Handling when using this term, so if the seller
does not intend to deliver the goods across the ship’s rail, the FCA term should be used).
The buyer is responsible for all costs and risks associated with the goods after they have
passed over the ship’s rail and loaded on board the ship, at the named port.
The buyer is responsible to arrange for the carriage of the goods from the named port of
shipment (the main-carriage and on-carriage).
The seller is required to arrange for the export clearance of the goods.
The buyer is responsible to arrange for the import clearance of the goods.

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

The seller’s obligation is fulfilled when the goods are delivered to a carrier, passing the
ship’s rail, and the contract of carriage is arranged, freight prepaid, to the named port.
The buyer is responsible for all risks associated with the goods after they have passed the
ship’s rail to be loaded on board the vessel, as well as the costs and risks related to the
goods (receipt of the goods from the carrier) in the importing country.
The seller is responsible to arrange for the pre-carriage and main-carriage of the goods.
The seller is responsible for the export clearance of the goods
The buyer is responsible for the import clearance of the goods.

Incoterms – CIF Cost, Insurance and Freight (... named port of destination)
The seller’s responsibility is fulfilled when the goods are delivered to a carrier, passing
the ship’s rail, the contract of carriage is arranged, freight prepaid, to the named port, and
insurance is obtained on the cargo.
The buyer is responsible for all risks associated with the goods after they have passed the
ship’s rail to be loaded on board the vessel, as well as the costs and risks related to the
goods (receipt of the goods from the carrier) in the importing country.
The seller is responsible to arrange for the pre-carriage and main-carriage of the goods.
The seller is responsible for the export clearance of the goods.
The buyer is responsible for the import clearance of the goods.

Incoterms – CPT Carriage Paid To (…named place of destination)

The seller’s responsibility is fulfilled when the goods are delivered to a carrier, the
contract of carriage is arranged, freight prepaid, to the named place of destination.
The buyer is responsible for all risks associated with the goods after they have been
delivered to the named place of destination, as well as the costs and risks related to the
goods (receipt of the goods from the carrier) in the importing country, including
insurance.
The seller is responsible to arrange for the pre-carriage and main-carriage of the goods.

84
The seller is responsible for the export clearance of the goods.
The buyer is responsible for the import clearance of the goods.

Incoterms – CIP Carriage and Insurance Paid To (…named place of destination)

The seller’s obligation is fulfilled when the goods are delivered to a carrier, and the
contract of carriage is arranged, freight prepaid – the named place of destination, and
insurance is obtained on the cargo.
The buyer is responsible for all costs and risks associated with the goods after receipt by
the carrier – prior to loading on board the vessel or aircraft, as well as the costs and risks
related to the goods (receipt of the goods from the carrier) upon arrival in the importing
country.
The seller is responsible to arrange for the pre-carriage and main carriage of the goods.
The seller is responsible for the export clearance of the goods.
The buyer is responsible for the import clearance of the goods.

Incoterms – DAP Delivered at Place (…named place of destination)

This is a any mode (arrival) term which replaces DAF.
Seller obtains export clearance and handles export compliance documentation.
Seller packages goods for transport and pays for all transportation costs to a named
destination place on the buyer’s side.
Buyer responsible for unloading goods at the named place – this is the main difference
between DAP and DAT.

Incoterms – DAT (Delivered at Terminal) (…named place of destination)

This is a any mode (arrival) term which replaces DEQ.
Seller obtains export clearance and handles export compliance documentation.
Seller packages goods for transport and pays for all transportation costs to a named
destination terminal.
Seller pays for unloading at the named destination (dock, warehouse, etc.) terminal on
buyer’s side.

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

The seller’s obligation is fulfilled when the goods have been made available to the buyer
at the named place of destination – cleared for importation.
The buyer is responsible to take delivery of the goods from the named place of
destination.
The seller is required to arrange for the entire contract of carriage (pre-carriage, main-
carriage, on-carriage) to the named place of destination.
The seller is required to arrange for the export clearance of the goods.
The seller is required to arrange for the import clearance of the goods, including the
payment of any applicable duties, taxes and fees.

References:
 ICC Documents

85