What are Incoterms?
The Incoterm Rules are international terms of trade for the sale of goods, and the word incoterms is an acronym standing for International Commercial Terms.
Within the structure of an international sales contract, they are used to define the reciprocal rights and obligations of the importer and the exporter, establishing a standardized set of definitions, and determining rules and practices, such as where the exporter must deliver the goods or who is responsible to pay the freight.
They are published by the International Chamber of Commerce (ICC) and the last version was updated in 2020, comprising 11 (eleven) rules.
Why use Incoterms in international trade?
Although there are other rules for global trade around the world, the Incoterms rules are global in their reach. This means that they do not include trade terms codified for national purposes and that, unlike national trade policies, they are universal, providing predictability and practicability to international business.
Which are the 11 Incoterms?
Of all the rules, 7 (seven) are for any modes of transport, with the exception of sea transport:
- EXW (Ex Works)
The importer is responsible for the entire logistics, tax, and customs of the international operation.
- FCA (Free Carrier)
The exporter is responsible for delivering the goods to the established location with all clearances procedures and taxes paid. The importer is responsible for contracting the freight and all other stages of the operation form the collection of the unloaded cargo.
- CPT (Carriage Paid to)
The exporter is responsible for all the costs related to the contracting of freight and customs procedures for the export, committing to deliver the goods to the carrier. The importer is responsible for contracting the international insurance and the clearance procedures ate the destination.
- CIP (Carriage and Insurance Paid to)
The exporter is responsible for contracting the freight to deliver the goods at the established destination and for contracting the insurance cover.
- DAP (Delivered at Place)
The exporter is responsible for all costs and risks concerning the deliver of the goods at the established destination and the importer is responsible for the clearance and collection of taxes related to the operation.
- DPU (Delivered at Place Unloaded)
The exporter is responsible for the delivery and unloading of the goods at the established location and the importer is responsible for the clearance and collection of taxes related to the operation.
- DDP (Delivered Duty Paid)
The exporter is responsible for all the operation, costs, and payment of taxes up to the delivery of the goods at the established place of delivery. The importer is responsible for receiving and unloading the goods.
And 4 (four) are for sea transport:
- FAS (Free Alongside Ship)
The exporter fulfils its commercial obligations by making the unloaded cargo available at the pre-established port of origin. All other responsibilities and risks concerning the goods, such as the freight and the insurance, are on the importer’s account.
- FOB (Free on Board)
The exporter is responsible for delivering the goods on the ship in which they will be transported. The importer is responsible for contracting the freight and assuming the risks and responsibilities with the goods once they are duly shipped.
- CFR (Cost and Freight)
The exporter is responsible for contracting the freight and making the cleared goods available to the carrier. From the moment the goods are shipped at the port of origin, the importer is responsible for all the risks, costs, and responsibilities.
- CIF (Cost Insurance and Freight)
The exporter is responsible for the costs of contracting the freight, insurance, and clearance of the goods for delivery to the pre-established port of destination.
Contact the Author: Renato Trevisan, Lawyer
Author: Isabela Burgo, Lawyer