The Incoterm rules are an internationally-recognised standard and are used around the world in international and domestic contracts for the sale of goods.
Incoterm rules provide definitions and rules of interpretation for most common commercial terms. They are accepted by governments, legal authorities and practitioners worldwide.
Published by the International Chamber of Commerce, Incoterms are mainly used to divide transaction costs and responsibilities between buyer and seller at the same time reflecting the transportation practices.
Regardless of the Incoterms rules, the seller must supply the goods as agreed in the contract of sale, together with such evidence of conformity as may be required by the contract. The buyer must take receipt and pay for the goods delivered, as provided in the contract.
When a seller and buyer wish to cite Incoterms as applying to the contract of sale, it is important to cite the term used, title and date applicable as there have been numerous amendments over the years.
This overview is provided as a guide only. If you need to know more about Incoterms you should visit the International Chamber of Commerce website.
Who is responsible for what?
This Incoterms table reflects buyer and seller responsibility for each type of shipment under the revised 11 different Incoterms governing shipment.
- Green indicates the seller has the responsibility to provide the service
- Blue indicates it is the buyer’s responsibility
Classifying the Incoterms 2010 rules
Each Incoterm refers to a type of agreement for the purchase and shipping of goods internationally. There are 11 different terms, each of which helps users deal with different situations involving the movement of goods. The 11 Incoterms 2010 rules are presented in two distinct classes:
Rules for any mode of transport
| Incoterm | Description | Designated Group |
| EXW | Ex-works – the seller makes the goods available at his premises and the buyer is responsible for all charges. This places minimum responsibility on the seller. The buyer is responsible for making arrangements with their forwarder for insurance, export clearance and handling all other paperwork. | E – Departure |
| FCA | Free carrier – the seller arranges transportation, but he is acting at the risk and the expense of the buyer. The seller chooses and works with the freight forwarder or the carrier. Delivery is accomplished at a predetermined port or destination point and the buyer is responsible for insurance. | F – Main Carriage Unpaid |
| CPT | Carriage paid to – the seller must pay the costs and freight to bring the goods to the port of destination. Risk is transferred to the buyer once the goods have crossed the ship’s rail. The seller must also pay for insurance for the buyer, naming the buyer as the insured while the goods are in transit. | C – Main Carriage Paid |
| CIP | Carriage and insurance paid to – because it relies on the carrier’s insurance, the shipper/seller is only required to purchase minimum coverage. When this particular agreement is in force, freight forwarders often act in effect, as carriers. The buyer’s insurance is effective when the goods are turned over to the forwarder. | C – Main Carriage Paid |
| DAT | Delivered at terminal – the seller is responsible for delivering the goods to the quay, wharf or port of destination. The buyer must also arrange for customs clearance and is responsible for duties and charges. Delivery occurs when the goods are unloaded from the arriving vehicle. | D – Arrival |
| DAP | Delivered at place – it is the seller’s responsibility to get the goods to the port of destination. The buyer is responsible for destination charges that occur after the ship is docked. In most cases, the buyer’s forwarder handles the task of accepting the goods at the border across the foreign soil. Delivery occurs at the named destination and the goods are ready for unloading. | D – Arrival |
| DDP | Delivered duty paid – the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty. Seller may also need to pay Value Added Tax or Sales tax for the buyer. | D – Arrival |
Rules for sea and inland waterway transport
| Incoterm | Description | Designated Group |
| FAS | Free alongside ship – the buyer bears all the transportation costs and the risk of loss of goods. It requires the shipper/seller to place the goods alongside the ship at the named port and clear goods for export. Companies selling on these terms will ordinarily use their freight forwarder to clear the goods for export. Delivery is accomplished when the goods are turned over to the buyer’s forwarder for insurance and transportation.
Suitable only for maritime transport only but not for multimodal sea transport in containers. This term is typically used for heavy-lift or bulk cargo. |
F – Main Carriage Unpaid |
| FOB | Free on board – the seller uses his freight forwarder to move the merchandise to the port or designated point of origin. Delivery is accomplished when the shipper/seller releases the goods to the buyer’s forwarder. The buyer’s responsibility for insurance and transportation begins at the same moment.
Suitable only for maritime transport only but not for multimodal sea transport in containers. |
F – Main Carriage Unpaid |
| CFR | Cost and freight – it is the seller’s responsibility to get goods from their door to the port of destination. Delivery is accomplished at this time. It is the buyer’s responsibility to cover insurance from the port of origin or port of shipment to buyer’s door. Given that the shipper is responsible for transportation, the shipper also chooses the forwarder. | C – Main Carriage Paid |
| CIF | Cost insurance and freight – the seller must pay the costs and freight to bring the goods to the port of destination. Risk is transferred to the buyer once the goods have crossed the ship’s rail. The seller must also pay for insurance for the buyer. In this arrangement, the seller usually chooses the forwarder. | C – Main Carriage Paid |
2011 Incoterm Changes
As of January 1, 2011 the eighth edition, Incoterms 2010 have taken effect. These include a number of changes to the previous version. Here are some of them:
The number of terms used has been reduced from 11 to 13. The DAF, DES, DEQ, and DDU designations have been eliminated, while two new terms, Delivered at Terminal (DAT) & Delivered at Place (DAP), have been added.
Instead of five terms, there are now three:
- DAT (Delivered at Terminal). This replaces the previous DEQ (Delivered ex quay)
- DAP (Delivered at Place). This replaces the DAF (delivered at frontier), DES (delivered ex ship) and DDU (delivered duty unpaid)
- DDP (Delivered Duty Paid)
The new terms apply to all modes of transport.