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Incoterms

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Incoterms
 
Incoterms are international regulations defining terms of trade, which were first established in 1936 by the Paris Chamber of Commerce (ICC). The latest version of Incoterms 2000, Publication No. 560 has been in use since 01/01/2000.
 
Brief description
Incoterms do not have the force of law, which means that their validity depends on the will of the parties. They gain legal force if they are incorporated into the contract between the buyer and seller. Additional arrangements in the contract between the parties, prevail over Incoterms. Incoterms define risk transitions in the sense of financial responsibility. The buyer is obliged to pay the purchase price if the risk has passed to him, even if the goods have subsequently sunk or if a reduction in value has been identified. As an example, the most commonly used formulas can be shown:

 

Formula

Cost pass-through

Passage of risk

EXW
(Ex Works, from the plant)

From the plant

From the plant

FAS
(Free Alongside Ship)

Franco along the side of the ship at a specific port of loading

Along the side of the ship at a specific port of loading

FOB
(Free On Board)

When the goods pass over the side of the ship at the port of loading

When the goods pass over the side of the ship at the port of loading

CFR
(Cost and Freight)

Port of destination (FOB + insurance costs + possible consulate costs + freight for carriage)

When the goods pass over the side of the ship at the port of shipment

CIF
(Cost, Insurance, Freight)

Port of destination (FOB + insurance costs + possible consulate costs + freight for carriage)

When the goods pass over the side of the ship at the port of shipment

CPT
(Carriage Paid To) carriage paid to the place of collection, applies to road and rail transportation

Delivery to pickup location

Acquisition of goods by the first transport company

DES
(Delivered Ex Ship) From the ship (at the port of destination)

From the ship's deck at the port of destination

From the ship's deck at the port of destination

DEQ
(Delivered Ex Quay Duty paid) from the quay (dutiable) at the specified port of destination

When made available on the quay at the specified port of destination

When made available on the quay at the specified port of destination

DAF
(delivered at Frontier) delivered to the border, a specific delivery point at the border

specified place of delivery at the border

specified place of delivery at the border

DDP
(Delivered Duty Paid) delivered to the designated destination in the country of destination (dutiable)

the designated destination in the country of destination (if necessary, also the unloading of the goods)

the designated destination in the country of destination

DDU
(Delivered Duty unpaid) delivered (unmetered )

the designated destination in the country of destination

the designated destination in the country of destination

FCA 
(Free Carrier) Franco carrier

Transfer of goods to the first carrier specified by the buyer

Transfer of goods to the first carrier specified by the buyer

CIP
(Carriage and Insurrance paid to) Carriage and insurance paid to

Specified destination (insurance paid)

Transfer to the first carrier

 

Tasks and Objectives
Incoterms regulate the rights and obligations of the seller and the buyer. Incoterms do not apply to shipping and transportation contracts. Also, they do not regulate the terms of payment (e.g., jurisdiction) and transfer of ownership (e.g., claims for defects). In particular, they regulate:
Splitting costs between seller and buyer
  • Transition of risks
  • Documentation organization
  • Transition of duty of care (duty of disposition)
The main division of Incoterms is between single-point and two-point formulas. For the former, costs and risks pass from the seller to the buyer simultaneously at the same point (e.g., FOB). In the case of two-point formulas, they pass at different points and times.