Incoterms Explained

What are Incoterms? International Commercial terms

INCOTERMS are a set of three-letter standard trade terms most commonly used in
international contracts for the sale of goods. It is essential that you are aware of your terms
of trade prior to shipment.
The Incoterms rules are a set of standard packages of terms and conditions relating to the
sale of physical goods that need to be transported. First published by the ICC in 1936, the
Incoterms rules are revised from time to time. The latest revision, Incoterms 2010 came into
force on 1 January 2011, replacing the previous version Incoterms 2000.
The Incoterms rules focus on these two key aspects of the transaction:

Which party buyer or seller is responsible for arranging and paying for transport
(and associated activities such as loading or unloading), import and export
procedures, insuring the goods etc.?
At what point in the journey does responsibility for the consignment transfer from
seller to buyer? This becomes important if the goods are lost or damaged in transit

The Incoterms 2010 revision contains 11 rules/terms

By agreeing to use an Incoterms rule, the buyer and seller achieve precision and clarity in
defining their obligations and responsibilities.
Note that the Incoterms rules do not attempt to cover all aspects of the commercial
agreement there are important matters such as transfer of title and how the goods are to
be paid for.
When the parties have agreed on an Incoterms rule to govern the transaction, it is
incorporated into the commercial agreement by way of a reference such as the following:
CIP Hong Kong Terminal 4 Incoterms 2010
EX Works EXW
EX Works EXW named place Incoterms 2010 - This term may be used for either domestic
or international trade. The seller delivers the goods by putting them at the buyer's disposal at
his own premises or at some other named place. The seller is responsible for all costs and
risks as far as the actual place of collection but has no obligation to load the goods on a
carrier's vehicle nor to enter them to customs for export although he may agree to provide
the buyer with information for customs clearance.

Free Carrier FCA

Free Carrier FCA named place Incoterms 2010 - This term may be used whatever mode or
modes of transport will be used.
Carriage Paid To CPT
Carriage Paid To CPT named place Incoterms 2010 - This term may be used whatever
mode or modes of transport will be used.The seller delivers the goods to the carrier or
another person nominated by the seller (by implication, unloaded from the seller's vehicle) at
an agreed place (not the final destination) but bears all costs of transporting the goods to the
final destination. The seller and buyer must agree on the place of delivery, where risk passes
to the buyer, and the final destination which should both be specified precisely
Carriage and Insurance Paid CIP
Carriage and Insurance Paid CIP to named place Incoterms 2010 - This term may be used
whatever mode or modes of transport will be used.
Delivered at Terminal DAT
Delivered at Terminal DAT named place Incoterms 2010 - This term may be used
regardless of the mode or modes of carriage to be used.
Delivered at Place DAP
Delivered at Place DAP named place Incoterms 2010 - This term may be used whatever
mode or modes of transport will be used.
Delivered Duty Paid DDP
Delivered Duty Paid DDP named place of destination Incoterms 2010 - This term may be
used whatever mode or modes of transport may be used.

Free Alongside Ship FAS

Terms for sea and inland waterways
Free Alongside Ship FAS named port of shipment Incoterms 2010 - The seller delivers the
goods when they are placed (on a quay or a barge) alongside the vessel nominated by the
buyer at the named port of shipment.
Free on Board FOB
Terms for sea and inland waterways
Free On Board FOB named port of shipment Incoterms 2010 - There is a significant
change from the meaning of this term in former revisions of Incoterms: transfer of risk does
not happen at the moment when goods cross the ship's rail.
Cost and Freight CFR
Terms for sea and inland waterways
Cost and Freight CFR named port of destination Incoterms 2010 - This rule is intended for
use only when carriage is by sea or inland waterway.

Cost Insurance and Freight CIF

Terms for sea and inland waterways
Cost Insurance and Freight CIF named port of destination Incoterms 2010 - This term is to
be used only when carriage is by sea or inland waterway.
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.
For containerised goods, consider Carriage and Insurance Paid CIP instead.

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 also arranges and pays for insurance for the goods for carriage to the named port.
However as with Carriage and Insurance Paid To, the rule only require a minimum level of
cover, which may be commercially unrealistic. Therefore the level of cover may need to be
addressed elsewhere in the commercial agreement.

Revision
Incoterms: Understanding and using Incoterms 2010 video 9 minutes
https://www.youtube.com/watch?v=Ek25Y23XGFg

Incoterms 2010 - 20Cube Logistics- 3 minutes

https://www.youtube.com/watch?v=6YYlQwN2s00