The eleven Incoterms® rules define the obligations of sellers and buyers in international trade. Here is how to choose the right one.
Incoterms® rules are standard trade terms published by the International Chamber of Commerce (ICC). Used in sales contracts worldwide, they define who is responsible for transport, insurance and customs formalities, and at what point the risk of loss or damage passes from the seller to the buyer. The edition currently in use, Incoterms® 2020, contains eleven rules.
Rules for any mode of transport
- EXW – Ex Works: the buyer collects the goods at the seller's premises and bears almost all costs and risks.
- FCA – Free Carrier: the seller delivers the goods, cleared for export, to a carrier nominated by the buyer.
- CPT – Carriage Paid To: the seller pays for carriage to the named destination, but the risk passes when the goods are handed to the first carrier.
- CIP – Carriage and Insurance Paid To: as CPT, with the seller also buying insurance. Under Incoterms® 2020, this cover must be extensive (Institute Cargo Clauses (A) or similar).
- DAP – Delivered at Place: the seller bears the risk until the goods are ready for unloading at the named place.
- DPU – Delivered at Place Unloaded: the seller delivers and unloads the goods at the named place. DPU replaced the former DAT rule.
- DDP – Delivered Duty Paid: the seller delivers the goods cleared for import, with all duties paid.
Rules for sea and inland waterway transport
- FAS – Free Alongside Ship: the seller places the goods alongside the vessel at the port of shipment.
- FOB – Free On Board: the risk passes once the goods are on board the vessel.
- CFR – Cost and Freight: the seller pays the freight to the destination port, but the risk passes on loading.
- CIF – Cost, Insurance and Freight: as CFR, with minimum insurance cover bought by the seller.
Choosing the right rule
Always state the rule, the named place and the edition, for example "FCA Jebel Ali Port, Incoterms® 2020". The rules do not deal with the transfer of ownership, the price or the consequences of a breach of contract: these must be covered by the contract itself. For containerised cargo, FCA, CPT or CIP are often more suitable than FOB, CFR or CIF.
Incoterms® is a trademark of the International Chamber of Commerce.
This article provides general information only and does not constitute legal advice.