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What are Incoterms?
Incoterms are commercial terms published by the ICC (International Chamber of Commerce) that are used in domestic and international shipping agreements. They are consistent with International Commercial Law (ICL). They cover all the important terms, including obligations, prices, risks, payables, delivery, credit terms, etc.
Incoterm Rules for Any Mode of Transportation
The ICC abbreviates all incoterms and they have international recognition.There are certain incoterm rules that are used in the transportation of goods:
- Delivered at Terminal (DAT) - This term obligates the seller to safely deliver the goods to a destination terminal. The seller covers the the costs of transportation. The buyer pays for customs clearance and taxes at destination.
- Delivered Duty Paid (DDP) - This term obligates the buyer to deliver goods to the designated place agreed between the buyer and the seller. The seller pays all taxes and duties during this process. The buyer pays the costs of unloading.
- Ex Works (EXW) - This incoterm specifies the seller's responsibiliy to ensure that the availability of goods at a designated location. The Buyer covers the cost of transportation and assumes the risk of loss.
- Free on board (FOB) - This incoterm specifies that the seller or the buyer is responsible to deliver the goods in a specified container. Any risk and transportation charges will be borne by the buyer or the seller according to the agreed terms and conditions. FOB "shipping place or its destination place" means that the seller is responsible for transportation of the goods to the port of shipment and the cost of loading. The buyer seller is responsible for the costs of ocean freight, insurance, unloading, and transportation from the arrival port to the final destination. The seller passes the risk to the buyer when the goods are loaded at the originating port.
- Cost Insurance and Freight (CIF) - The seller must deliver the shipped goods, ready and cleared for export, to the port of shipment. The seller pays for loading, transportation to the destination, and insurance coverage. Risk of loss is transferred to the buyer once the goods are loaded. The buyer assumes costs when the freight arrives at the port of destination.
When incoterms are incorporated into an agreement, the contract must mention the particular version ( e.g. Incoterms 2012).