INCO Terms

2010
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, it’s 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 seller’s and importing buyer’s 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 seller’s 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 seller’s 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: Seller’s responsibility and cost
 Export Clearance & Security: Seller’s 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 &
(named port of
Freight
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.
 Seller’s 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 &
(named port of
Freight
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 &
(named port of
Freight
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.