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INCOTERMS in International Trade

The Incoterms® agreed-upon between a seller and a buyer will determine who pays and who is responsible for each phase in the transportation of goods from origin to destination.

Categories
Guidelines to Logistics
Date
01.03.2024
By
Admin
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What Are Incoterms?

INCOTERMS (International Commercial Terms) are a set of rules published by the International Chamber of Commerce (ICC) that define the responsibilities of the parties involved in global trade. The ICC publishes a list of 11 different types of international commercial terms, each with its rules. The most recent edition, Incoterms 2020, was released in January 2020.

Defined terms in INCOTERMS:

There are certain terms that have special meaning within Incoterms, and some of the more important ones are defined below:

  1. Delivery: The point in the transaction where the risk of loss or damage to the goods is transferred from the seller to the buyer
  2. Arrival: The point named in the Incoterm to which carriage has been paid
  3. Free: Seller has an obligation to deliver the goods to a named place for transfer to a carrier
  4. Carrier: Any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes
  5. Freight forwarder: A firm that makes or assists in the making of shipping arrangements;
  6. Terminal: Any place, whether covered or not, such as a dock, warehouse, container yard or road, rail or air cargo terminal
  7. To clear for export: To file Shipper’s Export Declaration and get export permit

INCOTERMS rules are grouped into 4 categories:

  • The “E” term: (EXW) – The only term where the seller/ exporter makes the good available at his own premises to the buyer/ importer.
  • The “F” terms: (FCA, FAS and FOB) – Terms where the seller/ exporter is responsible to deliver the goods to a carrier named by the buyer.
  • The “C” terms: (CFR, CIF, CPT and CIP) – Terms where the seller/ exporter/ manufacturer is responsible for contracting and paying for carriage of the goods, but not responsible for additional costs or risk of loss or damage to the goods once they have been shipped.
  • The “D” terms: (DAP, DES, DEQ, DPU, DDU and DDP) – Terms where the seller/exporter/manufacturer is responsible for all costs and risks associated with bringing the goods to the named place of destination.

Here is a table with the Incoterms that is depending on the location and degree of responsibility assumed by the seller and the buyer, and its used according to the means of transport:

Reference: International Chamber of Commerce (ICC) – https://iccwbo.org/business-solutions/incoterms-rules/incoterms-2020/

Here is a table with allocation of costs to buyer/seller according to Incoterms 2020.