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Incoterms®

Incoterms®
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What are the Incoterms® rules?

The Incoterms® Rules - INternational COmmercial TERMS - are contractual terms, codified by the International Chamber of Commerce, which clearly identify the division between seller and buyer of the obligations, risks and costs associated with the delivery of the goods.

The Incoterms® specifically regulate who, between the two contractual parties, must stipulate the contract for the transport of the goods and any insurance up to the agreed place; who is responsible for the duties related to export and import customs clearance; they also identify where and when the delivery of the goods takes place, the time of transfer of the risks of damage to the goods from the seller to the buyer and any other expenses relating to the delivery of the goods.

The Incoterms® Rules represent a globally recognized standard and are included in national and international contracts, offering a certain point of reference for importers, exporters, lawyers, transporters and insurers working in the world of international trade.

Mission

The journey to Incoterms® 2020

The Incoterms® rules, drawn up and developed by international trade experts from all over the world, are published by ICC, in their first edition, in 1936. The edition currently in use is the 2020 edition, which came into force on January 1, 2020.

1923 | ICC conducts a first study on the six most used commercial terms in 13 countries, highlighting disparities in their interpretation.

2020 | The latest update of the Incoterms® Rules was released in the second half of 2019 and entered into force on 1 January 2020.

Incoterms®

The Incoterms® 2020 terms

Incoterms® rules have become an essential part of the everyday language of commerce. They are incorporated into contracts for the sale of goods around the world and provide fundamental rules and guidelines for importers, exporters, lawyers, transporters and insurers working in the world of international trade.

The following descriptions of the 11 rules of the Incoterms® 2020 must be read in the context of the full official text of the rules.

Incoterms®

Terms for each type of transport

These rules can be used regardless of the mode of transport chosen and also if more than one mode of transport is used.

EXW - Ex Works
"Ex Works" means that the seller makes the delivery by placing the goods at the disposal of the buyer in his own premises or in another agreed place (factory, factory, warehouse, etc.).
The seller is not obliged to load the goods on the pick-up vehicle, nor to clear them for export, if such customs clearance is envisaged. EXW carries the minimum level of obligations for the seller.

FCA - Free Carrier
"Free Carrier": the seller delivers the goods by handing the goods back to the carrier or to another person designated by the buyer on his premises or in another agreed place.
FCA requires that the seller, if applicable, clears the goods for export, but not for import in the country of destination, an obligation that is incumbent on the buyer as well as that of paying any import duties or completing any customs formalities at import.
FCA requires the buyer, if any, to instruct the carrier to issue a bill of lading to the seller.
FCA is the recommended deadline for container delivery.

CPT - Carriage Paid To
"Carriage Paid To" means that the seller delivers the goods by returning the goods to the carrier or to another person designated by the same seller at an agreed place (if such a place has been agreed between the parties) and that the seller must stipulate the transport contract and bear the costs necessary for sending the goods to the agreed destination.
When using CPT, CIP, CFR or CIF, the seller fulfills his obligation to deliver when he returns the goods to the carrier and not when the goods arrive at the place of destination.

CIP - Carriage And Insurance Paid To
"Transport and Insurance Paid to": the seller delivers the goods by returning the goods to the carrier or to another person designated by himself in an agreed place (if this place has been agreed between the parties).
This place represents the moment of the transfer of risk to the buyer, even if it is up to the seller to stipulate the transport contract and bear the costs necessary for sending the goods to the agreed destination. The seller also provides insurance coverage against the buyer's risk of loss or damage to the goods during transport.
The buyer must bear in mind that according to the CIP rule the seller is obliged to obtain insurance coverage that covers "all risks" except those explicitly excluded. The parties are, however, free to agree on a different, and therefore less broad, level of insurance coverage. CIP requires that the seller, if applicable, clears the goods for export, but not for import in the country of destination, an obligation that is incumbent on the buyer as well as that of paying any import duties or completing any customs formalities at import.

DPU - Delivered at Place Unloaded
"Returned to Unloaded Place of Destination": the seller delivers by placing the unloaded goods at the disposal of the buyer in the agreed port or place.
Such a port or location includes any space, covered or uncovered, such as a quay, warehouse, container yard, road, rail or airport terminal. The seller bears all the risks associated with the transport and unloading of the goods at the agreed port or place of destination. DPU requires that the seller, if applicable, clears the goods for export, but not for import in the country of destination, an obligation that is incumbent on the buyer as well as that of paying any import duties or completing any customs formalities at import.

DAP - Delivered At Place
"Return to Place of Destination" means that the seller makes the delivery by placing the goods at the disposal of the buyer on the means of transport of arrival ready for unloading at the agreed place of destination.
The seller bears all the risks associated with the transport of the goods to the agreed place. If the seller incurs costs provided for in his transport contract relating to unloading at the place of destination, he is not entitled to recover such costs from the buyer, unless otherwise agreed between the parties.
DAP requires the seller, if applicable, to clear the goods for export. However, the seller is not obliged to clear the goods for importation, pay any import duties or carry out any customs formalities for importation.

DDP - Delivered Duty Paid
"Return Duty Paid" means that the seller makes the delivery by placing the goods at the disposal of the buyer, cleared for import, on the means of transport of arrival ready for unloading at the agreed destination.
The seller bears all the costs and risks associated with the transport of the goods to the place of destination and is obliged to clear the goods not only for export but also for importation, to pay any fees for both export and import and to carry out all customs formalities. If the seller incurs costs provided for in his transport contract relating to unloading at the place of destination, he is not entitled to recover such costs from the buyer, unless otherwise agreed between the parties.
VAT or other similar taxes payable for import are to be paid by the seller, unless otherwise expressly agreed in the sales contract.
The DDP carries the maximum level of obligations for the seller.

Incoterms®

Sea freight terms

The following rules may only be used in the case of sea or inland waterway transport.

FAS - Free Alongside Ship
"Free Alongside Ship" means that the seller carries out the delivery by placing the goods alongside the ship (eg on a quay or on a barge) designated by the buyer in the named port of shipment.
The risk of loss or damage to the goods passes when the goods are alongside the ship and the buyer bears all costs thereafter. The seller must deliver the goods alongside the ship or procure the goods already delivered for shipment.
The reference to "procure" here refers to so-called multiple chain sales. FAS requires the seller, if applicable, to clear the goods for export. However, the seller is not obliged to clear import goods, pay any import duties or carry out any customs formalities at import.

FOB - Free On Board
"Free on Board" means that the seller carries out the delivery by placing the goods on board the ship designated by the buyer at the agreed port of shipment or by procuring the goods already delivered in this way.
The risk of loss or damage to the goods passes when the goods are on board the ship and the buyer bears all costs from that point onwards. The seller must deliver the goods on board the ship or procure the goods already thus delivered for shipment.
The reference to "procure" here refers to so-called multiple chain sales. FOB requires the seller, if applicable, to clear the goods for export. However, the seller is not obliged to clear the goods for importation, pay any import duties or carry out any customs formalities for importation.

CFR - Cost and Freight
"Cost and Freight" means that the seller carries out the delivery by putting the goods on board the ship or by procuring the goods already delivered in this way.
The risk of loss or damage to the goods passes when the goods are on board the ship. The seller must stipulate the transport contract and bear the costs necessary for sending the goods to the agreed port of destination. This rule has two critical points, because the passage of risk and the transfer of expenses take place in different places.
While the contract will always specify a port of destination, it may not specify the port of shipment, where the risk passes to the buyer. If the port of shipment is of particular interest to the buyer, the parties are recommended to specify this as clearly as possible in the contract. If the seller incurs costs provided for in his transport contract relating to unloading at a specific point in the port of destination, he is not entitled to recover such costs from the buyer, unless otherwise agreed between the parties.

CIF - Cost, Insurance and Freight
"Cost, Insurance and Freight" means that the seller makes the delivery by putting the goods on board the ship or procuring the goods already delivered.
The risk of loss or damage to the goods passes when the goods are on board the ship. The seller must stipulate the transport contract and bear the costs necessary for sending the goods to the agreed port of destination. The seller also provides insurance coverage against the buyer's risk of loss or damage to the goods during transport.
The buyer must bear in mind that under the CIF rule the seller is obliged to obtain only minimal insurance coverage. If the buyer wishes to have a broader insurance protection, he must expressly agree with the seller or arrange supplementary insurance directly. This rule has two critical points, because the passage of risk and the transfer of expenses take place in different places. While the contract will always specify a port of destination, it may not specify the port of shipment, where the risk passes to the buyer.

Incoterms®

How do incoterms® fit into a contract?

Incoterms® rules are pact rules: if the parties choose to adopt them to regulate these aspects, they must explicitly recall them in their contract, reporting the chosen rule, followed by the agreed place, Incoterms® and the year of the chosen edition, as in the following example: “FCA Genova Incoterms® 2020”.