Chapter 1: Incoterms
• 1.1 The necessity of the international rules
! Risk, as used here, is the term indicating who is responsible in case of damage
or loss. It should not be confused with the term ownership which indicates to
whom the goods belong, which is of importance when one of the parties goes
broke. !
Past:
Each country had its own system. In addition, the transfer of documents
representing the goods, in particular the ocean transport document ‘bill of
lading’, had to be regulated. At what point did the risk pass???
Solution:
The International Chamber of Commerce (ICC) in Paris made INCOTERMS ®,
= international rules for the interpretation of trade terms.
Relevance:
- Commercial relevance of Incoterms
• Cost calculation of contract price
• Costs of transport, documents
- Operational relevance of Incoterms
• Who does what, when, where?
• At who’s expense and risk?
Before accepting an incoterm: think about the risks involving your product,
is it worth it? cheap/ expensive product? , …
Incoterms ® 2020 is the latest version and became valid a from 1st of January
2020
Revisions on regular basis (+/- 10 years):
- New transportation techniques
• Containerization
• ro/ro traffic
- EDI and digitalization
- Uniformity and harmonization (B/L, packaging, insurance, custom doc)
The Incoterms which are universally applicable and especially suited to modern
door to door transport, offer the possibility of contracting for the complete
transport with a single carrier or forwarder who bears sole responsibility.
,• 1.2 The incoterms ® 2020
They are standard terms and conditions used world- wide, meant to form part of
international contracts of sale of goods. To which reference may be made in
commercial documents.
In sale contracts, three questions are predominant:
1. What should the seller do in order to get his money? In other words: when
has he delivered?
2. What should the buyer do in order to get his goods?
3. For whose account is the damage in case something goes wrong?
The intention of the Incoterms ® is to give an answer primarily by regulating:
1. The division of costs between seller and buyer,
2. The division of the risk between seller and buyer: who is entitled to the
transport insurance policy? and
3. The division of tasks between seller and buyer as regards packing,
export and import customs clearance, arranging for transport and
insurance, providing the required documents such as shipping documents,
insurance policies, export and import licences, inspection documents and
notification to the other party.
- For each of these divisions, the ICC defines the ‘critical point’ as that
point in transit where the seller’s responsibility ends and the buyer’s
responsibility begins.
How to refer?
Each term must be followed by an indication of the place where the delivery is
made. Specific reference must be made to the Incoterms® 2020.Bv
CFR Shanghai, Incoterms ® 2020
1 2 3
1 = delivery term
2 = Specify place of delivery/destination -> as specific as possible: Antwerp + basf
3 = Refer to version of Incoterms ®
You can still use other versions of incoterms, but you have to refer to it on place
3 -> bv CFR Shanghai, Incoterms ® 2010
,The ICC has grouped the incoterms in four basically different categories:
Group E: departure/ sellers’ obligation at its minimum
- Ex works: EXW
Group F (“free”): main carriage unpaid by seller (= paid by buyer)
- Free Carrier: FCA
- Free alongside ship: FAS
- Free on board: FOB
Group C (“Cost”): main carriage paid by seller
- Carriage paid to: CPT
- Carriage and insurance paid to: CIP
- Cost and freight: CFR
- Cost, insurance, freight: CIF
Group D: paid till arrival / delivered in port or at the place of destination by seller
- Delivered at place: DAP
- Delivered at place unloaded: DPU
- Delivered duty paid: DDP
- Whilst EXW represents the minimum obligation for the seller, DDP represents his
maximum obligation.
Characteristics by group:
Group E: departure/ sellers obligation at its minimum
- Delivery is at the seller’s works where the buyer must collect the goods.
Group F (“free”): main carriage unpaid by seller (= paid by buyer)
- The main carriage is not paid by the seller, but delivery is generally not far
from his home base.
Group C (“Cost”): main carriage paid by seller
- the seller pays the main carriage. Although the carriage may involve
transport to a far-off destination, in practice the actual delivery remains
near his home base at the point of delivery to the main carrier.
Group D: paid till arrival / delivered in port or at the place of destination by seller
- does the seller deliver to, and have responsibilities far from his home base
, Important difference:
- The first three groups are generally designated as ‘shipment’ contracts
which means that the seller’s risk ends in or near his home country. This
also applies to the C group. We refer to this later on.
- Group D contracts are known as ‘arrival’ contracts. They place a heavy
burden on the seller whose risk ends in a country which is not his own.
• 1.3 The incoterms 2020 by mode of transport
Any mode of transport, including multi-modal:
- Ex works EXW
- Free Carrier FCA
- Carriage paid to CPT
- Carriage and insurance paid to CIP
- Delivered at place DAP
- Delivered at place unloaded DPU
- Delivered duty paid DDP
Sea and inland waterways
- Free alongside ship FAS
- Free on board FOB
- Cost and freight CFR
- Cost, insurance and freight CIF
- Incoterms are: Only applicable if referred to in the contract! / Other stipulations in
the contract overrule Incoterms ®/ Do not apply to contract of carriage
- (Carriage does not care from who he gets the money)
The incoterms explained in a book of the ICC = ICC booklet:
Every incoterm has 10 tasks you need to follow, they are written in 2 point of
views:
- A: point of view for the seller
- B: point of view for the buyer side
• 1.1 The necessity of the international rules
! Risk, as used here, is the term indicating who is responsible in case of damage
or loss. It should not be confused with the term ownership which indicates to
whom the goods belong, which is of importance when one of the parties goes
broke. !
Past:
Each country had its own system. In addition, the transfer of documents
representing the goods, in particular the ocean transport document ‘bill of
lading’, had to be regulated. At what point did the risk pass???
Solution:
The International Chamber of Commerce (ICC) in Paris made INCOTERMS ®,
= international rules for the interpretation of trade terms.
Relevance:
- Commercial relevance of Incoterms
• Cost calculation of contract price
• Costs of transport, documents
- Operational relevance of Incoterms
• Who does what, when, where?
• At who’s expense and risk?
Before accepting an incoterm: think about the risks involving your product,
is it worth it? cheap/ expensive product? , …
Incoterms ® 2020 is the latest version and became valid a from 1st of January
2020
Revisions on regular basis (+/- 10 years):
- New transportation techniques
• Containerization
• ro/ro traffic
- EDI and digitalization
- Uniformity and harmonization (B/L, packaging, insurance, custom doc)
The Incoterms which are universally applicable and especially suited to modern
door to door transport, offer the possibility of contracting for the complete
transport with a single carrier or forwarder who bears sole responsibility.
,• 1.2 The incoterms ® 2020
They are standard terms and conditions used world- wide, meant to form part of
international contracts of sale of goods. To which reference may be made in
commercial documents.
In sale contracts, three questions are predominant:
1. What should the seller do in order to get his money? In other words: when
has he delivered?
2. What should the buyer do in order to get his goods?
3. For whose account is the damage in case something goes wrong?
The intention of the Incoterms ® is to give an answer primarily by regulating:
1. The division of costs between seller and buyer,
2. The division of the risk between seller and buyer: who is entitled to the
transport insurance policy? and
3. The division of tasks between seller and buyer as regards packing,
export and import customs clearance, arranging for transport and
insurance, providing the required documents such as shipping documents,
insurance policies, export and import licences, inspection documents and
notification to the other party.
- For each of these divisions, the ICC defines the ‘critical point’ as that
point in transit where the seller’s responsibility ends and the buyer’s
responsibility begins.
How to refer?
Each term must be followed by an indication of the place where the delivery is
made. Specific reference must be made to the Incoterms® 2020.Bv
CFR Shanghai, Incoterms ® 2020
1 2 3
1 = delivery term
2 = Specify place of delivery/destination -> as specific as possible: Antwerp + basf
3 = Refer to version of Incoterms ®
You can still use other versions of incoterms, but you have to refer to it on place
3 -> bv CFR Shanghai, Incoterms ® 2010
,The ICC has grouped the incoterms in four basically different categories:
Group E: departure/ sellers’ obligation at its minimum
- Ex works: EXW
Group F (“free”): main carriage unpaid by seller (= paid by buyer)
- Free Carrier: FCA
- Free alongside ship: FAS
- Free on board: FOB
Group C (“Cost”): main carriage paid by seller
- Carriage paid to: CPT
- Carriage and insurance paid to: CIP
- Cost and freight: CFR
- Cost, insurance, freight: CIF
Group D: paid till arrival / delivered in port or at the place of destination by seller
- Delivered at place: DAP
- Delivered at place unloaded: DPU
- Delivered duty paid: DDP
- Whilst EXW represents the minimum obligation for the seller, DDP represents his
maximum obligation.
Characteristics by group:
Group E: departure/ sellers obligation at its minimum
- Delivery is at the seller’s works where the buyer must collect the goods.
Group F (“free”): main carriage unpaid by seller (= paid by buyer)
- The main carriage is not paid by the seller, but delivery is generally not far
from his home base.
Group C (“Cost”): main carriage paid by seller
- the seller pays the main carriage. Although the carriage may involve
transport to a far-off destination, in practice the actual delivery remains
near his home base at the point of delivery to the main carrier.
Group D: paid till arrival / delivered in port or at the place of destination by seller
- does the seller deliver to, and have responsibilities far from his home base
, Important difference:
- The first three groups are generally designated as ‘shipment’ contracts
which means that the seller’s risk ends in or near his home country. This
also applies to the C group. We refer to this later on.
- Group D contracts are known as ‘arrival’ contracts. They place a heavy
burden on the seller whose risk ends in a country which is not his own.
• 1.3 The incoterms 2020 by mode of transport
Any mode of transport, including multi-modal:
- Ex works EXW
- Free Carrier FCA
- Carriage paid to CPT
- Carriage and insurance paid to CIP
- Delivered at place DAP
- Delivered at place unloaded DPU
- Delivered duty paid DDP
Sea and inland waterways
- Free alongside ship FAS
- Free on board FOB
- Cost and freight CFR
- Cost, insurance and freight CIF
- Incoterms are: Only applicable if referred to in the contract! / Other stipulations in
the contract overrule Incoterms ®/ Do not apply to contract of carriage
- (Carriage does not care from who he gets the money)
The incoterms explained in a book of the ICC = ICC booklet:
Every incoterm has 10 tasks you need to follow, they are written in 2 point of
views:
- A: point of view for the seller
- B: point of view for the buyer side
