Understanding Incoterms (International Commercial Terms)
The Incoterms® (abbreviation of International commercial terms) rules developed by the International Chamber of Commerce was created as an industry standard to facilitate international trade and for the interpretation of the trade terms that the parties to a contract of sale could agree to apply.
Currently in its 8th version, Incoterms® was first introduced in 1936 and as global trade developed and evolved, the Incoterms® rules were also revised in 1957, 1967, 1976, 1980, 1990, 2000 and 2010 to accommodate changes in global trade.
Today, these rules form an essential part of day to day international trade as well as domestic trades and they form an integral part of many sales contracts worldwide.
It is important to remember that “Incoterms” is not a generic name for international trade terms but is a trademark used to designate the rules devised by ICC.
Over the years, Incoterms® rules have provided guidance to importers, exporters, lawyers, transporters, insurers and others involved in international trade. They are published by the International Chamber of Commerce (ICC).
The core functions of Incoterms® used in international trade:
- Outline the obligations of the buyer and the seller in a trade transaction
- Clarify when risk passes from seller to buyer under each of these rules
- Outline how costs are allocated between the buyer and the seller
There are 11 Incoterm rules in circulation currently. They are divided into two classes:
Rules For Any Mode Of Transport
EXW (EX WORKS)
FCA (FREE CARRIER)
CPT (CARRIAGE PAID TO)
CIP (CARRIAGE AND INSURANCE PAID TO)
DAT (DELIVERED AT TERMINAL)
DAP (DELIVERED AT PLACE)
DDP (DELIVERED DUTY PAID)
Rules For Sea And Inland Waterway Transport
FAS (FREE ALONGSIDE SHIP)
FOB (FREE ON BOARD)
CFR (COST AND FREIGHT)
CIF (COST INSURANCE AND FREIGHT)