What are Incoterms?

Incoterms, short for International Commercial Terms, represent a standardized set of rules governing the carriage of goods in international trade. Established by the International Chamber of Commerce (ICC) since 1936, these terms undergo revisions every decade to reflect modern practices in global commerce.

These rules clarify delivery conditions under sales contracts and cover important aspects such as transportation obligations, insurance, customs formalities, duties, taxes, and risk transfer.

How are the Incoterms Presented?

Incoterms consist of 11 rules categorized into four groups. Each group outlines the sharing of risks, responsibilities, and costs between the buyer and seller. This applies regardless of the transport mode or the nature of the goods involved.

• • Group “E”: In this group, the seller makes the goods available at their premises.

• • Group “F”: Here, the seller delivers the goods to a carrier appointed by the buyer, without incurring transport costs.

• • Group “C”: The seller covers the main transport costs to the destination but does not bear the risk of loss or damage during transit.

• • Group “D”: All costs and risks for transporting goods to the specified destination fall on the seller.

The Incoterms 2024 Reform

The 2024 version maintains the same 11 rules as its predecessor but introduces updates to align with today’s logistical practices.

Multimodal Incoterms

These terms apply to all transport modes and can be employed in contracts involving multiple forms of transportation, especially container movements.

Incoterms EXW and FCA

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  • EXW – Ex Works: This rule imposes minimal obligations on the seller, who only needs to pack goods and make them available at their premises. The buyer assumes all costs and risks associated with loading and transporting the items, often facing challenges with export formalities.
• For more information on the EXW Incoterm.

• • FCA – Free Carrier: This term provides two options depending on the delivery location. The seller can either load the goods onto the buyer’s carrier at their premises or deliver them to a specified location. This arrangement allows the seller to manage export customs duties.
• For more information on the FAC Incoterm.

Incoterms CPT and CIP

• • CPT – Carriage Paid To: Under this term, the seller takes care of transportation costs to the destination. The buyer assumes risk once the goods are handed over to the carrier.
• For more information on the CPT Incoterm.

• • CIP – Carriage and Insurance Paid to: Similar to CPT, this term requires the seller to secure insurance for the goods during transit. This option is common for containerized transport, providing better control over the routing.
• For more information on the CIP Incoterm.

Incoterms DAP, DPU, and DDP

The “D” rules indicate delivery occurs in the country of destination, with the seller assuming all risks and costs.

• • DAP – Delivered At Place: In this case, goods are considered delivered when made available at the destination but not unloaded. The seller must transport the items there, while the buyer handles customs and import duties.
• For more information on the DAP Incoterm.

• • DPU – Delivered At Place Unloaded: This term replaces DAT (Delivered at Terminal) and requires the seller to unload the goods at the specified destination. The seller bears all risks and costs until the buyer receives the goods.
• For more information on the DPU Incoterm.

• • DDP – Delivered Duty Paid: In this arrangement, the seller assumes full responsibility, covering all costs, including customs duties and taxes, until delivery at the destination.
• For more information on the DDP Incoterm.

The Maritime Incoterms

The four maritime Incoterms apply when the seller places goods on board a ship at a sea or inland port, marking delivery to the buyer.

Incoterms FAS and FOB

• • FAS – Free Alongside Ship: According to this term, costs and risks transfer to the buyer once the goods are placed next to the ship at the designated port. The buyer then covers all subsequent costs.

• • FOB – Free On Board: Under this rule, the transfer occurs when the seller loads the goods onto the vessel designated by the buyer at the agreed port.
• For more information on the FOB Incoterm.

Incoterms CFR and CIF

• • CFR – Cost and Freight: In this arrangement, risk shifts to the buyer when the goods load onto the ship, while the seller covers transport costs until they reach the port of destination.

• • CIF – Cost, Insurance, and Freight: This option is similar to CFR, but it requires the seller to arrange insurance coverage during transport.

Key Changes in Incoterms 2024

• • Bills of Lading with Boarding Endorsement: The 2024 revisions introduce an option enabling sellers to meet banking document requirements. This ensures transport documents affirm that loading has occurred and supports certain exporter mandates.

• • Insurance Coverage Adjustments: The revised rules differentiate required insurance levels between CIF and CIP, clarifying obligations and influencing potential costs for sellers.

• • Transition from DAT to DPU: Updating DAT to DPU simplifies customs valuation. This change specifies that the seller must unload goods at the destination.