In modern international trade, contracts define the rules for loading, transporting and delivering goods. When crossing borders, as well as for arranging insurance, the existence of special documents is also required.
INCOTERMS Rules
The rules INCOTERMS represent a summary of the practice built in international trade. In them, in the form of a handbook, are collected the international rules for interpreting commercial terms, summarized by an international commercial convention. The first edition of the INCOTERMS compendium was published in 1936. Since then the rules have been updated periodically. The total number of updated editions is 8. The latest edition is from 2010 and has been in force since 2011.
When are INCOTERMS rules mandatory
Although the rules apply to the fundamental conditions for carrying out delivery of goods in international trade, they are mandatory and apply if the parties to such international transactions and deliveries expressly cite these rules in the contract entered into between them.
Conditions and circumstances that govern INCOTERMS rules
- Loading, transportation and unloading of the goods
- Processing the accompanying documents and permits for the goods
- Payment of customs duties and import and export taxes
- When the risk from the seller passes to the buyer
Main terms in INCOTERMS 2010
The main terms in the 2010 edition are 11. They are divided into four categories: E, F, C, D, according to the allocation of risk and according to the delivery costs of the given goods.
Category E
In Category E the term associated with the departure of the goods is included: EX Works (EXW, or EXW) – from the factory.
Clauses in this category provide the most favorable conditions for the buyer. The seller is obliged to deliver the goods to the buyer at the seller’s premises.
Category F
Here the following terms related to transport, unpaid by the seller, are included:
- Free Carrier (FCA) – free carrier, i.e., no carriage costs
- Free Alongside Ship (FAS) – free alongside or near the ship
- Free On Board (FOB) – free on board the ship at the port from which the goods depart
Under the clauses of this category, an obligation also arises for the seller: to deliver the goods to the designated by the buyer carrier, and to perform the loading. The remaining costs and risks are borne by the buyer.
Category C
These terms relate to transports paid by the seller:
- Cost and Freight (CFR) – cost and freight
- Cost, Insurance, Freight (CIF) – cost, insurance, freight
- Carriage Paid To (CPT) – the transport is paid to … (delivery place)
- Carriage, Insurance Paid To (CIP) – the transport and insurance are paid to … (delivery place)
Clauses in this category increase the seller’s obligations at the expense of the buyer. The seller must conclude a carriage contract and pay the transport costs.
Category D
The terms in this category relate to the arrival of the goods:
- Delivered At Frontier (DAF) – delivery to … (border point)
- Delivered Ex Ship (DES) – delivery of the goods on board up to … (the port agreed)
- Delivered Ex Quay (DEQ) – delivery to the quay of … (the port agreed)
- Delivered Duty Unpaid (DDU) – delivery to … (delivery place) with unpaid duties
- Delivered Duty Paid (DDP) – delivery to … (delivery place) with paid duties
Clauses in this category determine the most unfavorable conditions for the seller: payment of all costs, as well as all risks for delivering the goods.