Incoterms 2000

 

 



Incoterms: internationally used commercial terms

To avoid conflicts and difficulties, importers and exporters – or buyers and sellers – must have a common understanding of the terms and conditions under which they trade. In order to make this easier, the International Chamber of Commerce (ICC at Paris) has developed a series of international commercial (sales) terms - the Incoterms - to which parties may refer in their commercial contracts. The Incoterms are used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices. They closely correspond to the United Nation Convention on Contracts for the International Sale of Goods (CISG, Vienna 1980). The first Incoterms version was introduced in 1936 and the present dates from 2000. The mention of “Incoterms 2000” in a contract determines the obligations of the buyer and the seller and greatly contributes towards eliminating causes of disagreement. The International Chamber of Commerce are studying on new Incoterms, to be released probably in 2011, which will entail a few adjustments to the present Incoterms 2000.

The complete text of Incoterms constitutes a book of its own and can be purchased from www.iccbooks.com. Note: The “ICC Guide to Incoterms 2000” is recommended reading and it explains how Incoterms 2000 can work for you in daily practice and provides practical answers to important and recurring questions. Only the most commonly used terminology will be mentioned here, with the respective obligations of seller and buyers given in a concise transcription. Nevertheless, a comment on the Incoterms 2000 can be found on the UNCITRAL-website and especially at the website Incoterms.atspace.com .


When do Incoterms Apply?

Incoterms apply only if incorporated in the contract of sale or if they are specified in the solicitation document, mentioned in the offer, the sales conditions, the purchase order, the confirmation of an order or if they are stipulated by the parties in separate agreement. Parties wishing to use Incoterms 2000 should clearly specify that their solicitation document and the contract are governed by Incoterms 2000. Incoterms do not apply directly to questions relating to the transfer of ownership, property rights of the goods, breaches of contract and its consequences, exclusions of liabilities in certain circumstances, limitation period and conditions of payment. These should be clarified in the sales contract.


The Structure of Incoterms 2000

Incoterms 2000 are published by the International Chamber of Commerce (ICC) in Paris and are grouped into four different categories. In Groups E and F the seller’s obligations are minimal and the buyer must do most of the work and assume maximum risk. As we move to Group C, the supplier’s obligations become more extensive, however the buyer still assumes risks. As we move to group D, the supplier makes most arrangements and assumes maximum risk, whereas the buyer must pay for and arrange import customs clearance and un-loading from the forwarder’s vehicle at the final destination.

The 13 Incoterms fall into four different groups. These four groups are:
• E (Departure): The seller only makes the goods available to the buyer at the seller’s premises.
• F (Main Carriage Unpaid): The seller delivers the goods to a carrier or place appointed by the buyer.
• C (Main Carriage Paid): The seller has to contract at his costs for carriage (and insurance for CIF and CIP).
• D (Arrival): The seller must assume most costs, obligations and risks needed to bring the goods to the place of destination (except import customs clearance and un-loading at the final destination).

Each group's letter makes up the first letter of Incoterm. For example, if your agreement with a buyer calls for the release of goods by the seller to occur at the seller's location, the Ex Works (EXW) Incoterm would be used. This term states among other things that the buyer is to take over carriage and insurance responsibilities at the sellers dock. Alternatively, if the seller were to deliver goods to the buyers dock, including all carriage and insurance, a term from the Arrival group such as DDP would be appropriate. The DDP term stands for Delivered Duty Paid and includes in its definition that the seller will deliver goods to the buyers dock with all carriage, insurance, and duties paid. DDP represents the most obligations for the seller, whereas EXW represents the least.

Caution must be exercised when using Incoterms because the Incoterms relate to particular modes of transportation. For example, some of the Incoterms deal solely with transport by sea. Terms such as FOB and CIF can be used only for ocean bound freight. FOB, meaning Free on Board, translates to the shipper (seller) having upheld his part of the agreement when the goods pass the ship's rails at the port of exit. The receiving party (buyer) assumes risk and costs associated with the goods once they pass the ship's rail in the seller's home port. Due to the specific mention of the ship's rails, an aircraft or other mode of transport could not be used with FOB. For a shipment scheduled for delivery by air, rail, or some other form of transport with the same agreement as FOB, one would need to use the Incoterm FCA, or Free Carrier. FCA can include other modes of transportation such as road, rail, interland waterway, and air. Whereas transfer under FOB takes place when the cargo passes the ship's rails, transfer with FCA occurs when delivery of goods has been made at a destination previously outlined by the buying party.


(A) = Applicable Incoterms in different modes of transportation

Incoterms
Air Freight
Road Freight
Rail Freight
Sea Freight
EXW
(A)
(A)
(A)
(A)
FCA
(A)
(A)
(A)
(A)
FAS
-
-
-
(A)
FOB
-
-
-
(A)
CFR
-
-
-
(A)
CIF
-
-
-
(A)
CPT
(A)
(A)
(A)
(A)
CIP
(A)
(A)
(A)
(A)
DAF
-
(A)
(A)
-
DES
-
-
-
(A)
DEQ
-
-
-
(A)
DDU
(A)
(A)
(A)
(A)
DDP
(A)
(A)
(A)
(A)

 


The 13 different INCOTERMS

There are 13 different Incoterms (see for their meaning also ICC). At the end of this page, you'll find two tables that tell you how the responsibilities for performing (service/event) and for preparation (documents) are devided over the seller and the buyer. A third table indicates the moment on which the risk shifts from the seller to the buyer (transfer of risks). Again it has to be mentioned that Incoterms have no meaning for questions relating to the transfer of ownership, property rights of the goods, breaches of contract and its consequences, exclusions of liabilities in certain circumstances, limitation period and conditions of payment. The sale contract itself must provide an answer for these matters.

Origin Terms

EXW - Ex-Works, named place where shipment is available to the buyer, not loaded.
The seller will not contract for any transportation.


International Carriage NOT Paid by Seller

FCA - Free Carrier, unloaded at the seller's dock OR a named place where shipment is available to the international carrier or agent, not loaded.
This term can be used for any mode of transport.

FAS - Free Alongside Ship, named ocean port of shipment.
Ocean shipments that are NOT containerized.

FOB - Free On Board vessel, named ocean port of shipment.
This term is used for ocean shipments only where it is important that the goods pass the ship's rail.


International Carriage Paid by the Seller

CFR - Cost and Freight, Named ocean port of destination.
This term is used for ocean shipments that are not containerized.

CIF - Cost, Insurance and Freight, named ocean port of destination.
This term is used for ocean shipments that are not containerized.

CPT - Carriage Paid To, named place or port of destination.
This term is used for air or ocean containerized and roll-on roll-off shipments.

CIP - Carriage and Insurance Paid To, named place or port of destination.
This term is used for air or ocean containerized and roll-on roll-off shipments.


Arrival At Stated Destination

DAF - Delivered At Frontier, named place of destination, by land, not unloaded.
This term is used for any mode of transportation but must be delivered by land.

DES - Delivered Ex-Ship, named port of destination, not unloaded.
This term is used for ocean shipments only.

DEQ - Delivered Ex-Quay, named port of destination, unloaded, not cleared.
This term is used for ocean shipments only.

DDU - Delivered Duty Unpaid, named place of destination, not unloaded, not cleared.
This term is used for any mode of transportation.

DDP - Delivered Duty Paid, named place of destination, not unloaded, cleared.
This term is used for any mode of transportation.


Service/Event: Responsibility for performing

 S = seller; B = buyer
Service/Event                                
EXW
FCA
FAS
FOB
CFR
CIF
CPT
CIP
DAF
DES
DEQ
DDU
DDP
Export Pack
S
S
S
S
S
S
S
S
S
S
S
S
S
Mark and Label
S
S
S
S
S
S
S
S
S
S
S
S
S
Export Clearance (License)
B
S
B
S
S
S
S
S
S
S
S
S
S
Arrange Insurance
B
B
B
B
B
S
B
S
S
S
S
S
S
Nominate Main Carrier
B
B
B
B
S
S
S
S
S
S
S
S
S
Arrange Pre-Carriage
B
S
S
S
S
S
S
S
S
S
S
S
S
Load Pre-Carrier
B
S
S
S
S
S
S
S
S
S
S
S
S
Unload Pre-Carrier
B
B
S
S
S
S
S
S
S
S
S
S
S
Load Main Carrier
B
B
B
S
S
S
S
S
S
S
S
S
S
Stow Main Carrier
B
B
B
B
B
B
B
B
S
S
S
S
S
Unload Main Carrier
B
B
B
B
B
B
B
B
B
B
S
S
S
Nominate On-Carrier
B
B
B
B
B
B
B
B
B
B
B
S
S
Arrange On-Carrier
B
B
B
B
B
B
B
B
B
B
B
S
S
Nominate Import Broker
B
B
B
B
B
B
B
B
B
B
S
S
S
Load On-Carrier
B
B
B
B
B
B
B
B
B
B
B
S
S
Import Clearence (License)
B
B
B
B
B
B
B
B
B
B
S
B
S
Pay Destination Duty (taxes, fees)
B
B
B
B
B
B
B
B
B
B
S
B
S


Documents: Responsibility for preperation

 S = seller; B = buyer
Documents                                      
EXW
FCA
FAS
FOB
CFR
CIF
CPT
CIP
DAF
DES
DEQ
DDU
DDP
Commercial Invoice
S
S
S
S
S
S
S
S
S
S
S
S
S
Packing List
S
S
S
S
S
S
S
S
S
S
S
S
S
Export Declaration
B
S
B
S
S
S
S
S
S
S
S
S
S
Commercial Invoice
S
S
S
S
S
S
S
S
S
S
S
S
S
Precarriage Bill of Lading
B
S
S
S
S
S
S
S
S
S
S
S
S
Export License
B
S
B
S
S
S
S
S
S
S
S
S
S
Other Governmental (EPA/FDA)
B
S
B
S
S
S
S
S
S
S
S
S
S
Main Carriage Bill of Lading
B
B
B
B
S
S
S
S
S
S
S
S
S
Dock Receipt
B
S
S
S
S
S
S
S
S
S
S
S
S
Insurance Certificate
B
B
B
B
B
S
B
S
S
S
S
S
S
Import License
B
B
B
B
B
B
B
B
B
B
S
B
S
On-Carriage Bill of Lading
B
B
B
B
B
B
B
B
B
B
B
S
S
Entry Documents
B
B
B
B
B
B
B
B
B
B
S
B
S



Transfer of Risks

Incoterms not only describe the seller’s and buyer’s obligations and specify the point when the responsibilities for the transportation costs shift from the seller to the buyer, it also determines the point when the risks associated with transportation transfer from the seller to the buyer. This is the case for:

EXW when the goods are at the disposal of the buyer                                
FCA when the goods have been delivered to the carrier at the named place
FAS when the goods have been placed alongside the ship
FOB when the goods pass the ship’s rail, at the port of export (origin)
CFR when the goods pass the ship’s rail, at the port of export (origin)
CIF when the goods pass the ship’s rail, at the port of export (origin)
CIP when the goods have been delivered to the main carrier, at the port of export (origin)
CPT when the goods have been delivered to the main carrier, at the port of export (origin)
DAF when the goods have been delivered to the carrier
DES when the goods are placed at the disposal of the buyer on board the ship
DEQ when the goods are placed at the disposal of the buyer on the quay
DDU when the goods are placed at the disposal of the buyer
DDP when the goods are placed at the disposal of the buyer