International Commercial Terms (INCOTERMS).

This guide takes you through the INCOTERMS (International Commercial Terms), an internationally recognised set of trade term definitions developed by the International Chamber of Commerce (ICC).

INCOTERMS (International Commercial Terms) is an internationally recognised set of trade term definitions developed by the International Chamber of Commerce (ICC).

The terms define the trade contract responsibilities and liabilities between a buyer and a seller. They cover matters such as who is responsible for paying freight costs, insuring goods in transit and covering any import/export duties.

They are a valuable tool. Once the exporter and the importer have agreed on an INCOTERM, they can trade without discussing responsibilities for the costs and risks covered by the term.

This is a guide to the most commonly used INCOTERMS. You can find more information and full details of all the terms and their definitions from the International Chamber of Commerce.

EXW - Ex works.

The seller must 'place the goods at the disposal of the buyer ...... at the named place of delivery, not loaded'

Appropriate to any mode of transport but should only be used for domestic transactions i.e. home sales, in view of the facts that the seller has only to 'provide the buyer'.... assistance in obtaining any export licence, or other official authorization' and also has no obligation to load the goods. In addition the buyer has limited obligations to provide the seller with proof of export.

FCA is more appropriate to international trade.

FCA - Free carrier.

The seller must 'deliver the goods to the carrier .. nominated by the buyer .. at the named place'.

To be highlighted as the most appropriate term for international sales with minimum obligations for the seller. Has the advantage, when compared with EXW, that the seller is responsible for any export licensing and Customs export clearance, thus easing the problem of proof of export, and the seller must load the goods (which is generally the case in practice).

New focus on 'FCA ...seller's premises' as the appropriate term for international sales if the seller wants to limit their obligations to the loading of the goods and export clearance.

• CPT - Carriage paid (...named place of destination) - any mode of transport.
• CIP - Carriage and insurance paid (...named place of destination) - any mode of transport.

The seller must 'deliver to the first carrier at the named place'.

Strong recommendation that the parties define the place of delivery (in the seller's country) as well as the place of destination (in the buyer's country) because of the fact that risk passes to the buyer at the named place of delivery in the seller's country.

'When CPT or CIP terms are used, the seller fulfils its obligation to deliver when it hands the goods over to the carrier and not when the goods reach the place of destination.' i.e. These are ' shipment contracts' not ' arrival contracts'.

It is therefore strongly recommended that the place of delivery (in the seller's country) is identified as precisely as possible in the contract.

• DAT - Delivered at Terminal (...named terminal at destination).

The seller must 'unload the goods ... and the deliver them by placing them at the disposal of the buyer at the named terminal'

Typically used for bulk shipments and where the parties identify a point i.e. a port or depot, following the unloading of the goods - the seller must arrange and pay for unloading.

DAP would be inappropriate in these circumstances in that the seller has only to place the goods 'ready for unloading'.

• DAP - Delivered at Place (...named place of destination) - appropriate to both domestic and international sales.

Seller delivers when 'the goods are placed at the disposal of the buyer ....ready for unloading by the buyer ... at the named place'. All import Customs formalities and costs are the responsibility of the buyer.

• DDP - Delivered duty paid (...named place of destination) - any mode of transport.

The seller must deliver the goods to the buyer, cleared for import, and not unloaded at the named place of destination.

Maritime only terms.

• FAS - Free alongside ship (...named port of shipment) - to be used only for conventional sea (or inland waterway) transport.

Where the goods are containerised, the FCA term should be used.

• FOB - Free on board (...named port of shipment) - to be used only for conventional sea (or inland waterway) transport.

Seller must deliver the goods by 'placing them on board the vessel...at the loading point'

Where the goods are handed over to the carrier before they are on board the vessel e.g. goods in containers, the FCA term should be used.

• CFR - Cost and freight (...named port of destination) - to be used only for conventional sea (or inland waterway) transport.
• CIF - Cost insurance and freight (...named port of destination) - to be used only for conventional sea (or inland waterway) transport.

Seller must deliver the goods by 'placing them on board the vessel'.

Where the goods are handed over to the carrier before they are on board the vessel e.g. goods in containers, the CPT or CIP term should be used.

'When CFR or CIF terms are used, the seller fulfils its obligation to deliver when it hands the goods over to the carrier and not when the goods reach the place of destination.'

It is therefore strongly recommended that the port of shipment is identified as precisely as possible in the contract.

Back to top