In 2010, the International Chamber of Commerce (ICC) updated the previous version of INCOTERMS (2000) in order to adapt these commercial tools to the new global and computerized economy as well as to evolutions of transport and logistics. These rules have been applied since January 1st, 2011.
INCOTERMS (International Commercial Terms) define the seller and buyer’s obligations in a commercial transaction. They aim to fix some international and homogeneous rules by inserting contractual dispositions mainly used in external trade contracts. We can therefore avoid or at least significantly limit uncertainties surrounding controversial interpretations of some clauses in different countries.
These rules have been created by the ICC in 1936 and have been then regularly updated according to the use. Whether these rules are not mandatory, they are valuable assets to international commerce operators. INCOTERMS indicate precisely the obligations, distribution of expenses and risks relevant to goods delivery by seller to buyer. Export or import activities mean a physical movement of goods that may generate risks and expenses. The purpose is to determine precisely who supports the risks and expenses and to know exactly to what extent risks and expenses are supported by each part.
INCOTERMS rules precise the meaning of a range of commercial terms, each of them been composed of three letters followed by the name of a place, port, etc.. The main goal of these rules is to clarify to what extent the seller has met his obligations and delivered goods to the buyer in the legal sense.
When the place of transfer is known, the seller can then add to the price, and therefore to the invoice, all expenses related to transport or other outgoing costs (consular, customs and tax formalities) to the point priorly agreed. The buyer knows then the expenses that fall on him, which were not included in the previous invoice. The risk transfer place is extremely important as far as it allows to determinate to what extent the transport risk is assumed by the buyer or the seller. The delivery begins at this point ;
EXW - Ex Works
The seller makes the goods available at their premises. This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included. EXW means that a buyer incurs the risks for bringing the goods to their final destination. Either the seller does not load the goods on collecting vehicles and does not clear them for export, or if the seller does load the goods, he does so at buyer's risk and cost. If the parties agree that the seller should be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale.
The buyer arranges the collection of the freight from the supplier's designated ship site, and is responsible for clearing the goods through Customs. The buyer is also responsible for completing all the export documentation, although the seller does have an obligation to provide information relating to the goods on request.
These documentary requirements may result in two principal issues. Firstly, the stipulation for the buyer to complete the export declaration can be an issue in certain jurisdictions (not least the European Union) where the customs regulations require the declarant to be either an individual or corporation resident within the jurisdiction. If the buyer is based outside of the customs jurisdiction they will be unable to clear the goods for export, meaning that the goods may be declared in the name of the seller, in breach of the EXW term.
Secondly, most jurisdictions require companies to provide proof of export for tax purposes. In an EXW shipment, the buyer is under no obligation to provide such proof to the seller, or indeed to even export the goods. In a customs jurisdiction such as the European Union, this would leave the seller liable to a sales tax bill as if the goods were sold to a domestic customer. It is therefore of utmost importance that these matters are discussed with the buyer before the contract is agreed. It may well be that another Incoterm, such as FCA seller's premises, may be more suitable, since this puts the onus for declaring the goods for export onto the seller, which provides for more control over the export process..
FCA - Free Carrier
The seller delivers the goods, cleared for export, at a named place. This can be to a carrier nominated by the buyer, or to another party nominated by the buyer.
It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller's premises, the seller is responsible for loading the goods on to the buyer's carrier. However, if delivery occurs at any other place, the seller is deemed to have delivered the goods once their transport has arrived at the named place; the buyer is responsible for both unloading the goods and loading them onto their own carrier.
CPT - Carriage Paid To
CPT replaces the venerable C&F (cost and freight) and CFR terms for all shipping modes outside of non-containerised seafreight.
The seller pays for the carriage of the goods up to the named place of destination. Risk transfers to buyer upon handing goods over to the first carrier at the place of shipment in the country of Export. The seller is responsible for origin costs including export clearance and freight costs for carriage to named place of destination (either final destination such as buyer's facilities or port of destination has to be agreed by seller and buyer, however, named place of destination is generally picked due to cost impacts). If the buyer does require the seller to obtain insurance, the Incoterm CIP should be considered.
CIP - Carriage and Insurance Paid To
This term is broadly similar to the above CPT term, with the exception that the seller is required to obtain insurance for the goods while in transit. CIP requires the seller to insure the goods for 110% of their value under at least the minimum cover of the Institute Cargo Clauses of the Institute of London Underwriters (which would be Institute Cargo Clauses (C)), or any similar set of clauses. The policy should be in the same currency as the contract.
CIP can be used for all modes of transport, whereas the equivalent term CIF can only be used for non-containerised seafreight
DAT - Delivered At Terminal
This term means that the seller covers all the costs of transport (export fees, carriage, unloading from main carrier at destination port and destination port charges) and assumes all risk until destination port or terminal. The terminal can be a Port, Airport, or inland freight interchange. Import duty/taxes/customs costs are to be borne by Buyer.
DAT - Delivered At Place
Incoterms 2010 defines DAP as “Delivered at Place” - the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. Under DAP terms, the risk passes from seller to buyer from the point of destination mentioned in the contract of delivery.
Once goods are ready for shipment, the necessary packing is carried out by the seller at his own cost, so that the goods reach their final destination safely. All necessary legal formalities in the exporting country are completed by the seller at his own cost and risk to clear the goods for export.
After arrival of the goods in the country of destination, the customs clearance in the importing country needs to be completed by the buyer at his own cost and risk, including all customs duties and taxes.
Under DAP terms, all carriage expenses with any terminal expenses are paid by seller up to the agreed destination point. The necessary unloading cost at final destination has to be borne by seller under DAP terms. If unloading can not be carried out by the seller, it might be better to ship under DAT (Delivered At Terminal) terms instead.
DDP - Delivered Duty Paid
Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes. The seller is not responsible for unloading. This term is often used in place of the non-Incoterm "Free In Store (FIS)". This term places the maximum obligations on the seller and minimum obligations on the buyer. With the delivery at the named place of destination all the risks and responsibilities are transferred to the buyer and it is considered that the seller has completed his obligations.
Rules for sea and inland waterway transport
To determine if a location qualifies for these four rules, please refer to 'United Nations Code for Trade and Transport Locations (UN/LOCODE)'.
The four rules defined by Incoterms 2010 for international trade where transportation is entirely conducted by water are as per the below. It is important to note that these terms are generally not suitable for shipments in shipping containers; the point at which risk and responsibility for the goods passes is when the goods are loaded on board the ship, and if the goods are sealed into a shipping container it is impossible to verify the condition of the goods at this point.
Also of note is that the point at which risk passes under these terms has shifted from previous editions of Incoterms, where the risk passed at the ship's rail
FAS - Free Alongside Ship
The seller delivers when the goods are placed alongside the buyer's vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. The FAS term requires the seller to clear the goods for export, which is a reversal from previous Incoterms versions that required the buyer to arrange for export clearance. However, if the parties wish the buyer to clear the goods for export, this should be made clear by adding explicit wording to this effect in the contract of sale. This term should be used only for non-containerised seafreight and inland waterway transport.
FOB - Free On Board
Under FOB terms the seller bears all costs and risks up to the point the goods are loaded on board the vessel. The seller must also arrange for export clearance. The buyer pays cost of marine freight transportation, bill of lading fees, insurance, unloading and transportation cost from the arrival port to destination. Since Incoterms 1980 introduced the FCA incoterm, FOB should only be used for non-containerised seafreight and inland waterway transport. However, FOB is still used for all modes of transport despite the contractual risks that this can introduce.
CFR - Cost and Freight
The seller pays for the carriage of the goods up to the named port of destination. Risk transfers to buyer when the goods have been loaded on board the ship in the country of Export. The Shipper is responsible for origin costs including export clearance and freight costs for carriage to named port. The shipper is not responsible for delivery to the final destination from the port (generally the buyer's facilities), or for buying insurance. If the buyer does require the seller to obtain insurance, the Incoterm CIF should be considered. CFR should only be used for non-containerized seafreight and inland waterway transport; for all other modes of transport it should be replaced with CPT.
CIF - Cost Insurance and Freight
This term is broadly similar to the above CFR term, with the exception that the seller is required to obtain insurance for the goods while in transit to the named port of destination. CIF requires the seller to insure the goods for 110% of their value under at least the minimum cover of the Institute Cargo Clauses of the Institute of London Underwriters (which would be Institute Cargo Clauses (C)), or any similar set of clauses. The policy should be in the same currency as the contract. CIF can be used by any transport by sea and air not limited to containerized or non-containerized cargo and includes all charges up to the port/terminal of entrance. CIP covers additional charges at the port/terminal of entrance.
What has changed in 2010
INCOTERMS now have to be regarded as commercial rules. They are now classified in two parts :
INCOTERMS (International Commercial Terms) define the seller and buyer’s obligations in a commercial transaction. They aim to fix some international and homogeneous rules by inserting contractual dispositions mainly used in external trade contracts. We can therefore avoid or at least significantly limit uncertainties surrounding controversial interpretations of some clauses in different countries.
These rules have been created by the ICC in 1936 and have been then regularly updated according to the use. Whether these rules are not mandatory, they are valuable assets to international commerce operators. INCOTERMS indicate precisely the obligations, distribution of expenses and risks relevant to goods delivery by seller to buyer. Export or import activities mean a physical movement of goods that may generate risks and expenses. The purpose is to determine precisely who supports the risks and expenses and to know exactly to what extent risks and expenses are supported by each part.
INCOTERMS rules precise the meaning of a range of commercial terms, each of them been composed of three letters followed by the name of a place, port, etc.. The main goal of these rules is to clarify to what extent the seller has met his obligations and delivered goods to the buyer in the legal sense.
When the place of transfer is known, the seller can then add to the price, and therefore to the invoice, all expenses related to transport or other outgoing costs (consular, customs and tax formalities) to the point priorly agreed. The buyer knows then the expenses that fall on him, which were not included in the previous invoice. The risk transfer place is extremely important as far as it allows to determinate to what extent the transport risk is assumed by the buyer or the seller. The delivery begins at this point ;
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| Incoterms 2010 |
EXW - Ex Works
The seller makes the goods available at their premises. This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included. EXW means that a buyer incurs the risks for bringing the goods to their final destination. Either the seller does not load the goods on collecting vehicles and does not clear them for export, or if the seller does load the goods, he does so at buyer's risk and cost. If the parties agree that the seller should be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale.
The buyer arranges the collection of the freight from the supplier's designated ship site, and is responsible for clearing the goods through Customs. The buyer is also responsible for completing all the export documentation, although the seller does have an obligation to provide information relating to the goods on request.
These documentary requirements may result in two principal issues. Firstly, the stipulation for the buyer to complete the export declaration can be an issue in certain jurisdictions (not least the European Union) where the customs regulations require the declarant to be either an individual or corporation resident within the jurisdiction. If the buyer is based outside of the customs jurisdiction they will be unable to clear the goods for export, meaning that the goods may be declared in the name of the seller, in breach of the EXW term.
Secondly, most jurisdictions require companies to provide proof of export for tax purposes. In an EXW shipment, the buyer is under no obligation to provide such proof to the seller, or indeed to even export the goods. In a customs jurisdiction such as the European Union, this would leave the seller liable to a sales tax bill as if the goods were sold to a domestic customer. It is therefore of utmost importance that these matters are discussed with the buyer before the contract is agreed. It may well be that another Incoterm, such as FCA seller's premises, may be more suitable, since this puts the onus for declaring the goods for export onto the seller, which provides for more control over the export process..
FCA - Free Carrier
The seller delivers the goods, cleared for export, at a named place. This can be to a carrier nominated by the buyer, or to another party nominated by the buyer.
It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller's premises, the seller is responsible for loading the goods on to the buyer's carrier. However, if delivery occurs at any other place, the seller is deemed to have delivered the goods once their transport has arrived at the named place; the buyer is responsible for both unloading the goods and loading them onto their own carrier.
CPT - Carriage Paid To
CPT replaces the venerable C&F (cost and freight) and CFR terms for all shipping modes outside of non-containerised seafreight.
The seller pays for the carriage of the goods up to the named place of destination. Risk transfers to buyer upon handing goods over to the first carrier at the place of shipment in the country of Export. The seller is responsible for origin costs including export clearance and freight costs for carriage to named place of destination (either final destination such as buyer's facilities or port of destination has to be agreed by seller and buyer, however, named place of destination is generally picked due to cost impacts). If the buyer does require the seller to obtain insurance, the Incoterm CIP should be considered.
CIP - Carriage and Insurance Paid To
This term is broadly similar to the above CPT term, with the exception that the seller is required to obtain insurance for the goods while in transit. CIP requires the seller to insure the goods for 110% of their value under at least the minimum cover of the Institute Cargo Clauses of the Institute of London Underwriters (which would be Institute Cargo Clauses (C)), or any similar set of clauses. The policy should be in the same currency as the contract.
CIP can be used for all modes of transport, whereas the equivalent term CIF can only be used for non-containerised seafreight
DAT - Delivered At Terminal
This term means that the seller covers all the costs of transport (export fees, carriage, unloading from main carrier at destination port and destination port charges) and assumes all risk until destination port or terminal. The terminal can be a Port, Airport, or inland freight interchange. Import duty/taxes/customs costs are to be borne by Buyer.
DAT - Delivered At Place
Incoterms 2010 defines DAP as “Delivered at Place” - the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. Under DAP terms, the risk passes from seller to buyer from the point of destination mentioned in the contract of delivery.
Once goods are ready for shipment, the necessary packing is carried out by the seller at his own cost, so that the goods reach their final destination safely. All necessary legal formalities in the exporting country are completed by the seller at his own cost and risk to clear the goods for export.
After arrival of the goods in the country of destination, the customs clearance in the importing country needs to be completed by the buyer at his own cost and risk, including all customs duties and taxes.
Under DAP terms, all carriage expenses with any terminal expenses are paid by seller up to the agreed destination point. The necessary unloading cost at final destination has to be borne by seller under DAP terms. If unloading can not be carried out by the seller, it might be better to ship under DAT (Delivered At Terminal) terms instead.
DDP - Delivered Duty Paid
Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes. The seller is not responsible for unloading. This term is often used in place of the non-Incoterm "Free In Store (FIS)". This term places the maximum obligations on the seller and minimum obligations on the buyer. With the delivery at the named place of destination all the risks and responsibilities are transferred to the buyer and it is considered that the seller has completed his obligations.
Rules for sea and inland waterway transport
To determine if a location qualifies for these four rules, please refer to 'United Nations Code for Trade and Transport Locations (UN/LOCODE)'.
The four rules defined by Incoterms 2010 for international trade where transportation is entirely conducted by water are as per the below. It is important to note that these terms are generally not suitable for shipments in shipping containers; the point at which risk and responsibility for the goods passes is when the goods are loaded on board the ship, and if the goods are sealed into a shipping container it is impossible to verify the condition of the goods at this point.
Also of note is that the point at which risk passes under these terms has shifted from previous editions of Incoterms, where the risk passed at the ship's rail
FAS - Free Alongside Ship
The seller delivers when the goods are placed alongside the buyer's vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. The FAS term requires the seller to clear the goods for export, which is a reversal from previous Incoterms versions that required the buyer to arrange for export clearance. However, if the parties wish the buyer to clear the goods for export, this should be made clear by adding explicit wording to this effect in the contract of sale. This term should be used only for non-containerised seafreight and inland waterway transport.
FOB - Free On Board
Under FOB terms the seller bears all costs and risks up to the point the goods are loaded on board the vessel. The seller must also arrange for export clearance. The buyer pays cost of marine freight transportation, bill of lading fees, insurance, unloading and transportation cost from the arrival port to destination. Since Incoterms 1980 introduced the FCA incoterm, FOB should only be used for non-containerised seafreight and inland waterway transport. However, FOB is still used for all modes of transport despite the contractual risks that this can introduce.
CFR - Cost and Freight
The seller pays for the carriage of the goods up to the named port of destination. Risk transfers to buyer when the goods have been loaded on board the ship in the country of Export. The Shipper is responsible for origin costs including export clearance and freight costs for carriage to named port. The shipper is not responsible for delivery to the final destination from the port (generally the buyer's facilities), or for buying insurance. If the buyer does require the seller to obtain insurance, the Incoterm CIF should be considered. CFR should only be used for non-containerized seafreight and inland waterway transport; for all other modes of transport it should be replaced with CPT.
CIF - Cost Insurance and Freight
This term is broadly similar to the above CFR term, with the exception that the seller is required to obtain insurance for the goods while in transit to the named port of destination. CIF requires the seller to insure the goods for 110% of their value under at least the minimum cover of the Institute Cargo Clauses of the Institute of London Underwriters (which would be Institute Cargo Clauses (C)), or any similar set of clauses. The policy should be in the same currency as the contract. CIF can be used by any transport by sea and air not limited to containerized or non-containerized cargo and includes all charges up to the port/terminal of entrance. CIP covers additional charges at the port/terminal of entrance.
What has changed in 2010
INCOTERMS now have to be regarded as commercial rules. They are now classified in two parts :
- Rules applicable to every mode of transport (EXW, FCA, CPT, CIP, DAT, DAP, DDP)
- Rules for maritime and fluvial transport (FAS, FOB, CFR, CIF)
- The new structure presents 11 rules instead of 13 before (INCOTERMS 2000). Two new INCOTERMS have appeared:
- DAT (Delivered at Terminal) and DAP (Delivered at Place). They replace DEQ and DAF, DES and DDU respectively. The new 2010 version confirms that FAS, FOB, CFR and CIF do not fit container or ship carrier transport. These rules appropriate with maritime way are then reserved to bulk transport and conventional freight.
- New INCOTERMS take into account the dematerialization of documents and allow then very clearly that every new document could be a file or an equivalent electronic procedure. Evolutions of transport techniques (containerization, grouping, multimodal transport, etc.) are also incorporated
These rules appropriate with maritime way are then reserved to bulk transport and conventional freight. Gui hang di nuoc ngoai
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