Incoterms® (International Commercial Terms) are a set of international rules for the uniform interpretation of common contract clauses in export/import transactions. They were first published in 1936 by the International Chamber of Commerce (ICC) in Paris, and are updated periodically. The latest version, Incoterms® 2010, was launched in September 2010 and became effective January 1, 2011.
Incoterms® are key elements of international contracts of sale intended to guide parties with respect to carriage of goods from seller to buyer along with export and import clearance. Incoterms® also explain the division of costs and risks between the two parties and at what point the responsibility shifts from seller to buyer.
Incoterms® allow electronic communication, such as EDI and electronic documents as long as both parties agree. They are not laws enacted by governments, but rather, rules agreed to by parties to a contract.
Incoterms® have two components – the terms name and a name place. It is incomplete if one is missing.
Example: FCA, XYZ Cargo Terminal, Chicago O’Hare International Airport (ORD), USA
The existing 11 Incoterms® are broken down into four color-coded categories for easy navigation, reading and understanding.
E terms - Departure
- EXW - Ex Works (named place of delivery)
F terms - Main Carriage Unpaid
- FCA - Free Carrier (named place of delivery)
- FAS - Free Alongside Ship (named port of shipment)
- FOB - Free On Board (named port of shipment)
C terms - Main Carriage Paid
- CFR - Cost and Freight (named port of destination)
- CIF - Cost, Insurance and Freight (named port of destination)
- CPT - Carriage Paid To (named place of destination)
- CIP - Carriage and Insurance Paid To (named place of destination)
D terms - Arrival
- DAT - Delivered At Terminal (named terminal at port or place of destination)
- DAP - Delivered At Place (named place of destination)
- DDP - Delivered Duty Paid (named place of destination)
Caution must be exercised when using Incoterms® because they relate to particular modes of transportation. The terms FAS, FOB, CFR and CIF are applicable to only sea or inland waterway transport. All other Incoterms® can be used for all modes of transportation - air, ground, rail and ocean.
A short glossary related to Incoterms® can be found here.