Incoterms (International Commercial Terms) are international rules in dictionary format, providing clear definitions of the most widely used trade terms in the field of international trade, primarily regarding the transfer of responsibility from the seller to the buyer, especially concerning the delivery point. International trade terms are standardized contract conditions for international sales, predetermined by an internationally recognized document.
The fundamental principles regulated by Incoterms include:
- Distribution of Transportation Costs: Specifies which transportation costs the seller and the buyer bear. It defines the expenses borne by the seller and those taken on by the buyer, starting from a certain point.
- Transfer of Risks: Specifies the moment when the risk of damage, loss, or accidental loss of the cargo shifts from the seller to the buyer.
- Delivery Date: Determines the moment of the actual transfer of the goods by the seller to the buyer or their representative—for example, a transportation organization. This, consequently, signifies the fulfillment or non-fulfillment of the seller's first commitments regarding delivery times.
Outside Incoterms, rules regarding the transfer of ownership from the seller to the buyer, as well as the consequences of non-compliance by the parties with the obligations under the sales contract, including grounds for exemption from liability, remain beyond the scope of Incoterms, as they are regulated by the provisions of applicable law or the Vienna Convention.
Each defined term is a three-letter abbreviation, with the first letter indicating the point of transfer of obligations from the seller to the buyer:
- EXW (Ex Works): The buyer picks up the goods from the seller's specified warehouse. Payment of export duties is the buyer's responsibility.
- FCA (Free Carrier): The goods are delivered to the buyer's main carrier at the seller's specified departure terminal. The seller pays the export duties.
- CPT (Carriage Paid To): The goods are delivered to the buyer's main carrier. The seller pays for the main carriage to the specified destination terminal. The buyer bears insurance costs, import customs clearance, and delivery from the arrival terminal of the main carrier.
- CIP (Carriage and Insurance Paid To): Similar to CPT, but the main carriage is insured by the seller.
- DAT (Delivered at Terminal): Delivery to the specified import customs terminal is paid for. Export payments and main carriage, including insurance, are paid by the seller. Import customs clearance is done by the buyer.
- DAP (Delivered at Place): Delivery to the place specified in the contract. Import duties and local taxes are paid by the buyer.
- DDP (Delivered Duty Paid): The goods are delivered to the buyer at the specified destination, cleared of all duties and risks.
Additionally, Incoterms-2010 defines 4 terms exclusively applicable to maritime transport and transport in territorial waters:
- FOB (Free On Board): The goods are loaded onto the buyer's ship, and the transshipment is paid by the seller.
- FAS (Free Alongside Ship): The goods are delivered to the buyer's ship. The loading and unloading costs are paid by the buyer.
- CFR (Cost and Freight): The goods are delivered to the buyer's specified destination port. The buyer pays for the insurance of the main carriage, unloading, and transshipment.
- CIF (Cost, Insurance and Freight): Similar to CFR, but the seller insures the main carriage.
The content of Incoterms changes in different revisions. For instance, in Incoterms-2010, the term DAP was introduced to replace the excluded terms DAF, DES, and DDU. Additionally, the more general term DAT was introduced to replace DEQ, and DDU was replaced.