INCO Terms 2010

AMIT INDOREY
SAFEDUCATE
INCO terms

Abbreviation for International Commercial Terms

They are a set of rules which define the responsibilities of sellers and buyers
for the delivery of goods under sales contracts for domestic and
international trade.
They are published by the International Chamber of Commerce (ICC) and
are widely used in international commercial transactions.
The first Incoterms were issued in 1936. The most recent version (8th Version)
of Incoterms, Incoterms 2010, were launched in September 2010 and
became effective January 1, 2011.
 Incoterms provide a common set of rules to clarify responsibilities of sellers
and buyers for the delivery of goods under sales contracts.
They apportion transportation costs and responsibilities associated with the
delivery of goods between buyers (importers) and sellers (exporters) and
reflect modern-day transportation practices.
Incoterms significantly reduce misunderstandings among traders and
thereby minimize trade disputes and litigation.
"INCOTERMS" is a registered trademark of the ICC.
Benefit of Incoterms

The main benefit of Incoterms is to reduce risk

Due to the fact that countries have different business cultures and
languages, its wise to have a clearly-written contract to reduce any
misunderstandings. Thus, the main benefit of Incoterms is reduced risk in a
transaction.
By specifying the exporting sellers and importing buyers obligations, there
is no confusion with regards to rules of transportation from point A to point
B.
Incoterms do not cover, however, ownership or title transfer of the goods.
These terms are agreed upon separately between the two transacting
parties.
INCO terms 2010

The two main categories of Incoterms 2010 are now organized by modes
of transport.
Group 1. Incoterms that apply to any mode of transport
Group 2. Incoterms that apply to sea and inland waterway transport only
(uncontainerized or bulk cargo only)
Group 1 INCO

EXW Ex Works
FCA Free Carrier
CPT Carriage Paid To
CIP Carriage and Insurance Paid To
DAT Delivered at Terminal
DAP Delivered at Place
DDP Delivered Duty Paid
Group 2 INCO

FAS Free Alongside Ship

FOB Free on Board
CFR Cost and Freight
CIF Cost, Insurance, and Freight
EXW (Ex Works)
EXW (Ex Works)

This term places the maximum obligation on the buyer and minimum
obligations on the seller.
EXW means that a buyer incurs the risks for bringing the goods to their final
destination
Seller, only has to make the goods available, suitably packaged, at the
specified place, usually at the sellers factory or depot or another named
place (factory , warehouse etc.).
Seller has no obligation to load the goods or clear them for export.
EXW (Ex Works)

Buyer bears all risk and costs starting when he picks up the products at the
sellers location until the products are delivered to his location.
The buyer is responsible for loading the goods onto a vehicle (even though
the seller may be better placed to do this); for all export procedures; for
onward transport and for all costs arising after collection of the goods.
If the seller does load the goods, he does so at buyer's risk and cost.
If the parties agree that the seller should be responsible for the loading of
the goods on departure and to bear the risk and all costs of such loading,
this must be made clear by adding explicit wording to this effect in the
contract of sale.
EXW (Ex Works)

In many cross-border transactions, this rule can present practical

difficulties.
Specifically, the exporter may still need to be involved in export reporting
and clearance processes, and cannot realistically leave these to the
buyer.
The buyer is also responsible for completing all the export documentation,
although the seller does have an obligation to obtain information and
documents at the buyer's request and cost.
FCA(Free Carrier)
FCA(Free Carrier)

The seller is responsible for delivery of the goods, cleared for export, at a
named place (possibly including the seller's own premises). The goods can
be delivered to a carrier nominated by the buyer, or to another party
nominated by the buyer. Carrier/buyer is responsible for unloading after
delivery and loading into own carrier.
Buyer assumes all risks and costs associated with delivery of goods to final
destination including transportation after delivery to carrier and any
customs fees to import the product into a foreign country.
FCA(Free Carrier)

In all cases, the seller is responsible for export clearance; the buyer
assumes all risks and costs after the goods have been delivered at the
named place.
FCA is the rule of choice for containerised goods where the buyer
arranges for the main carriage.
If delivery occurs at the seller's premises, or at any other location that is
under the seller's control, the seller is responsible for loading the goods on
to the buyer's carrier. this is an important difference from Ex Works EXW.
CPT (Carriage Paid To)
CPT (Carriage Paid To)

Can be used for any transport mode, or where there is more than one
transport mode.
The seller is responsible for origin costs including export clearance and
freight costs for carriage up to the named place of destination (either the
final destination such as the buyer's facilities or a port of destination. This
has to be agreed by seller and buyer, however).
However, the goods are considered to be delivered when the goods have
been handed over to the first or main carrier, so that the risk transfers to
buyer upon handing goods over to that carrier at the place of shipment in
the country of Export.
CPT (Carriage Paid To)

Terminal Handling Charges (THC) are charges made by the terminal

operator. These charges may or may not be included by the carrier in their
freight rates the buyer should enquire whether the CPT price includes
THC, so as to avoid surprises.
By default , seller is not responsible for procuring insurance.
The buyer may wish to arrange insurance cover for the main carriage,
starting from the point where the goods are taken in charge by the carrier
NB this will not be the place referred to in the Incoterms rule, but will be
specified elsewhere within the commercial agreement
If the buyer requires the seller to obtain insurance, the Incoterm CIP should
be considered instead.
CIP Carriage and Insurance Paid to
(named place of destination)
CIP Carriage and Insurance Paid to
(named place of destination)

Can be used for any transport mode, or where there is more than one
transport mode. The seller is responsible for arranging carriage to the
named place, and also for insuring the goods.
Seller clears the goods for export and delivers them to the carrier or
another person stipulated by the seller at a named place of shipment.
Seller is responsible for the transportation costs associated with delivering
goods and procuring minimum insurance coverage to the named place
of destination.
DAT Delivered At Terminal (named
terminal at port or place of
destination)
DAT Delivered At Terminal (named
terminal at port or place of
destination)
Terminal (named place)can be any place a quay, container yard,
warehouse or transport hub.
The seller covers all the costs of transport (export fees, carriage, unloading
from main carrier at destination port and destination port charges) and
assumes all risk until arrival at the destination port or terminal.
The place for delivery should be specified as precisely as possible, as many
ports and transport hubs are very large.
A useful rule, well suited to container operations where the seller bears
responsibility for the main carriage.
DAT Delivered At Terminal (named
terminal at port or place of
destination)
Risk transfers from seller to buyer when the goods have been unloaded.
The buyer is responsible for import clearance and any applicable local
taxes or import duties and all charges after unloading (for example, Import
duty, taxes, customs and on-carriage)
However, it is important to note that any delay or demurrage charges at
the terminal will generally be for the seller's account.
DAP Delivered At Place (named
place of destination)
DAP Delivered At Place (named
place of destination)

Once goods are ready for shipment, the necessary packing is carried out
by the seller at his own cost, so that the goods reach their final destination
safely. All necessary legal formalities in the exporting country are
completed by the seller at his own cost and risk to clear the goods for
export.
The seller delivers when the goods are placed at the disposal of the buyer
on the arriving means of transport ready for unloading at the named
place of destination. Under DAP terms, the risk passes from seller to buyer
from the point of destination mentioned in the contract of delivery.
DAP Delivered At Place (named
place of destination)

The seller is responsible for arranging carriage and for delivering the goods,
ready for unloading from the arriving conveyance, at the named
place. (An important difference from Delivered At Terminal DAT, where
the seller is responsible for unloading.)
After arrival of the goods in the country of destination, the customs
clearance in the importing country needs to be completed by the buyer
at his own cost and risk, including all customs duties , taxes and unloading.
However, as with DAT terms any delay or demurrage charges are to be
borne by the seller.
DDP Delivered Duty Paid (named
place of destination)
DDP Delivered Duty Paid (named
place of destination)

This term means that the seller assumes all the risks and costs of transport
(export fees, carriage, insurance, and destination port charges, delivery to
the final destination) and pays all applicable taxes and import
customs/duty
The buyer has only to unload the goods at the final destination
This rule places the maximum obligation on the seller, and is the only rule
that requires the seller to take responsibility for import clearance and
payment of taxes and/or import duty.
These last requirements can be highly problematical for the seller. In some
countries, import clearance procedures are complex and bureaucratic,
and so best left to the buyer who has local knowledge.
Group 2 Incoterms

The four rules defined by Incoterms 2010 for international trade where
transportation is entirely conducted by water are as per the below.
It is important to note that these terms are generally not suitable for shipments
in shipping containers; the point at which risk and responsibility for the goods
passes is when the goods are loaded on board the ship, and if the goods are
sealed into a shipping container it is impossible to verify the condition of the
goods at this point.
Use of this rule is restricted to goods transported by sea or inland waterway.
In practice it should be used for situations where the seller has direct access to
the vessel for loading, e.g. bulk cargos or non-containerised goods.
FAS Free Alongside Ship (named port
of shipment)
FAS Free Alongside Ship (named port
of shipment)

The seller delivers when the goods (cleared for export)are placed alongside
the vessel (e.g., on a quay or a barge) nominated by the buyer at the named
port of shipment. Buyer assumes all risks/costs for goods from this point forward.
The buyer is responsible for loading the goods and all costs thereafter.
This means that the buyer has to bear all costs and risks of loss of or damage to
the goods from that moment.
This term should be used only for non-containerised sea freight and inland
waterway transport.
Packaging: Sellers responsibility and cost
Export Clearance & Security: Sellers responsibility and cost
FOB Free on Board (named port of
shipment)
FOB Free on Board (named port of
shipment)

Seller delivers goods, cleared for export, loaded on board the vessel at the
named port.
Once the goods have been loaded on board, risk transfers to the buyer, who
bears all costs thereafter.
Under FOB terms the seller bears all costs and risks up to the point the goods
are loaded on board the vessel. The seller must also arrange for export
clearance. The buyer pays cost of marine freight transportation, bill of lading
fees, insurance, unloading and transportation cost from the arrival port to
destination.
FOB should only be used for non-containerised sea freight and inland
waterway transport. However, FOB is still used for all modes of transport despite
the contractual risks that this can introduce.
CFR Cost and Freight (named port of
destination)
CFR Cost and Freight (named port of
destination)

Seller arranges and pays for transport to named port. Seller delivers goods,
cleared for export, loaded on board the vessel.
However risk transfers from seller to buyer once the goods have been
loaded on board, i.e. before the main carriage takes place.
Seller is not responsible for insuring the goods for the main carriage.
The seller pays for the carriage of the goods up to the named port of
destination.
If the buyer does require the seller to obtain insurance, the Incoterm CIF
should be considered. CFR should only be used for non-containerized sea
freight and inland waterway transport; for all other modes of transport it
should be replaced with CPT.
CIF Cost, Insurance & Freight
(named port of destination)
CIF Cost, Insurance & Freight
(named port of destination)

seller clears the goods for export and delivers them when they are on-
board the vessel at the port of shipment.
Seller bears the cost of freight and insurance to the named port of
destination.
Sellers insurance requirement is only for minimum cover. Buyer is
responsible for all costs associated with unloading the goods at the
named port of destination and clearing goods for import. Risk passes from
seller to buyer once the goods are on-board the vessel at the port of
shipment.
CIF Cost, Insurance & Freight
(named port of destination)

The insurance policy should be in the same currency as the contract.

However risk transfers from seller to buyer once the goods have been
loaded on board, i.e. before the main carriage takes place.
However as with Carriage and Insurance Paid To, the rule only require a
minimum level of cover, which may be commercially unrealistic (110%).
Therefore the level of cover may need to be addressed elsewhere in the
commercial agreement.
CIF Cost, Insurance & Freight
(named port of destination)

In particular, CIF is the most common because there will be a stronger

grasp on shipments. In this scenario, the seller takes responsibility for all
costs until the cargo is loaded at the origin port, but the cost passes to the
buyer at the specified discharge port.