Contents

1. Introduction...............................................................................................................1

2. Concept......................................................................................................................2

3. Incoterms...................................................................................................................2

3.1. The Origin of Incoterms.....................................................................................2

3.2. Who Decides Incoterms Rules?......................................................................3

3.3. How Are Incoterms Rules Revised?...............................................................3

4. Groups of Incoterms..................................................................................................4

5. Effective Use of Incoterms........................................................................................5

5.1. Basic Features of Incoterms Used for All Modes of Transport..............................6

a) EXW Incoterm (Ex Works)................................................................................6

b) FCA Incoterm (Free Carrier)..............................................................................7

c) CPT Incoterm (Carriage Paid to)............................................................................8

d) CIP Incoterm (Carriage and Insurance Paid to)..................................................9

e) DAP Incoterm (Delivered at Place)........................................................................9

f) DPU Incoterm (Delivered at Place Unloaded).....................................................10

g) DDP Incoterm (Delivered Duty Paid)..............................................................11

5.2. Basic Features of Incoterms Used for Sea and Inland Waterway Transport........12

a) FAS Incoterm (Free Alongside Ship)...............................................................12

b) FOB Incoterm (Free on Board).........................................................................12

c) CFR Incoterm (Cost and Freight).........................................................................13

d) CIF Incoterm (Cost, Insurance and Freight).....................................................14

6. Advantages..............................................................................................................15

7. Disadvantages..........................................................................................................15

8. The Importance of Incoterms..................................................................................16

9. Conclusion...............................................................................................................17

10. Bibliographic references.......................................................................................18

1. Introduction

This present work deals with The Incoterms that were first developed in 1936 by the
International Chamber of Commerce (ICC) in an attempt to simplify the communication
problems involved in international business.
They are still used today and periodically revised.
In continuity we will know more about the topic indicated above, we will know how
many and what are the Incoterms and much more.
2. Concept

3. Incoterms

The Incoterms or International Commercial Terms are a series of pre-defined

commercial terms published by the International Chamber of Commerce (ICC) relating
to international commercial law.

They are widely used in international commercial transactions or procurement

processes and their use is encouraged by trade councils, courts and international
lawyers. A series of three-letter trade terms related to common contractual sales
practices, the Incoterms rules are intended primarily to clearly communicate the tasks,
costs, and risks associated with the global or international transportation and delivery of
goods. Incoterms inform sales contracts defining respective obligations, costs, and risks
involved in the delivery of goods from the seller to the buyer, but they do not
themselves conclude a contract, determine the price payable, currency or credit terms,
govern contract law or define where title to goods transfers.

The Incoterms rules are accepted by governments, legal authorities, and practitioners
worldwide for the interpretation of most commonly used terms in international trade.
They are intended to reduce or remove altogether uncertainties arising from the
differing interpretations of the rules in different countries. As such they are regularly
incorporated into sales contracts worldwide.

"Incoterms" is a registered trademark of the ICC.

The first work published by the ICC on international trade terms was issued in 1923,
with the first edition known as Incoterms published in 1936. The Incoterms rules were
amended in 1953, 1967, 1976, 1980, 1990, 2000, and 2010, with the ninth version —
Incoterms 2020 — having been published on September 10, 2019.

3.1. The Origin of Incoterms

Differences in trading practices and legal interpretations between traders of different

countries necessitated a common set of rules. These rules needed to be easy for all
participants to prevent misunderstandings, disputes and litigation.
Incoterms were first conceived by the ICC in 1921, and the first Incoterms rules were
created in 1936. They were officially designated as Incoterms in 1936. Since then,
Incoterms have evolved into a codified worldwide contractual standard. They are
periodically updated when international trade events require attention. Amendments and
additions were made in 1953, 1967, 1976, 1980, 2000, 2010 and 2020.

3.2. Who Decides Incoterms Rules?

It’s no small task to be in charge of an international standard. These international trade

terms are decided upon by 13 ICC commissions made up of private-sector experts from
across the world. These individuals specialize in everything from fields of immediate
concern to international business.

3.3. How Are Incoterms Rules Revised?

The Incoterms 2020 drafting group, led by co-chairs Christoph Martin Radtke and
David Lowe, was in charge of revising the Incoterms rules. According to the ICC, “The
group is formed by experts from various nationalities chosen for their extraordinary
contribution to international commercial law and to the International Chamber of
Commerce along the years.”

Here’s a look at the process followed to revise Incoterms rules:

After the drafting group made its revisions, the revised drafts were circulated broadly
and internationally through ICC National Committees, with the resulting comments and
suggestions channeled back to the drafting group.

The final draft, once approved by the ICC Commission on Commercial Law and
Practice, was submitted for adoption by the ICC Executive Board.

This broad, international consultation aimed to ensure that official ICC products possess
an authority, representing the true consensus of the world business community.
4. Groups of Incoterms

There are 13 different Incoterms and they have been grouped into 4 different categories.

4.1. Group 1 - The E Term (Departure)

EXW - Ex Works

This group has only one term (EXW).

Under this shipping term the seller provides the goods for collection by the buyer at the
seller's own premises.

The buyer arranges insurance against damage to the goods in transit.

This term requires the least effort by the seller, but should not be used where the buyer
cannot carry out export formalities.

4.2. Group 2 - The F Terms (Free, Main Carriage Unpaid)

FCA - Free Carrier            FAS - Free alongside ship,

FOB - Free on Board      

The seller must deliver the goods to a carrier appointed by the buyer and located in the
seller's country.

The buyer arranges insurance against damage to the goods in transit.

4.3. Group 3 - The C Terms (Main Carriage Paid)

CFR - Cost and Freight   CIF - Cost, Insurance and Freight

CPT - Carriage paid to    CIP - Carriage and Insurance paid to

In this group the seller assumes the responsibility for the main contract of carriage.

These terms provide for the seller contracting for carriage on usual terms at his own
expense.
In the terms CIF and CIP the seller arranges and pays for insurance against damage to
the goods in transit.

4.4. Group 4 - The D Terms (Delivered/Arrival)

DAF - Delivered at Frontier         DES - Delivered ex ship

DEQ - Delivered ex quay              DDU - Delivered duty unpaid

DDP - Delivered duty paid          

In this group the seller has to bear all costs and risks of bringing the goods to the
country of destination.
The seller arranges and pays for insurance against damage to the goods in transit.

5. Effective Use of Incoterms

The use of Incoterms in international trade is a widespread phenomenon, and disputes

frequently arise due to confusion concerning them. Prior to inserting an Incoterm into a
contract, it is essential for the parties to make sure that the Incoterm meets all their
expectations and needs regarding the following issues:

 Is transport to be made by sea/inland waterway means or not?

 Who should bear the majority of the risk of loss/damage to the goods – the seller or
the buyer? At what point in time in the delivery to the place of destination should
risk be shifted from the seller onto the buyer?
 Is there a need to use the services of a carrier? If so, who should have an obligation
to conclude a contract of carriage – the seller or the buyer?
 Should the seller be responsible for the unloading of the goods?
 Is there a need to subscribe an insurance contract?

Everyone in your organization who has a role in your international transactions should
be familiar with the terms. If you are an exporter, that includes your international sales
force. If you are an importer, that means your purchasing agents and buyers. Regardless
if you are a seller or a buyer, that also includes your accounting department, logistics
and transportation departments, senior managers and others.

When a seller and a buyer agree to employ a particular Incoterm, each accepts the
corresponding obligations and responsibilities as clearly set forth and defined under that
particular Incoterm. Incoterms reduce the risk of legal complications by giving buyers
and sellers a single home base from which to reference trade practices.

By correctly using Incoterms, you’ll be able to partner more harmoniously, transport

and deliver your goods more easily and get paid more quickly. And who doesn’t want
that?

5.1. Basic Features of Incoterms Used for All Modes of Transport

a) EXW Incoterm (Ex Works)

The EXW Incoterm imposes only minimum obligations on the seller. More particularly,
the seller is simply required to deliver the goods to the buyer at a named place of
delivery which is usually the seller’s place of business, but can be any particular
location such as a warehouse, factory, etc., and within the agreed time specified in the
contract. It is not required for the seller to load the goods on any specific vehicle or to
clear the goods for export. If the place of delivery is not specified in the contract, or if
several place of delivery can be envisaged, “the seller may select the point that best suits
its purpose.” In principle, until the goods have not been delivered as specified in the sale
contract, the seller bears all risks of loss or damage to the goods. Once delivered, such
risk is automatically shifted to the buyer. The same is true for any costs relating to the
goods – until the delivery of the goods, the costs are to be borne by the seller; after their
delivery, by the buyer.
 Several authors suggest that the EXW Incoterm is better suited for domestic (and not
international) trade and point out that it is “commonly used in courier shipments when
the courier picks up the shipment from client’s premises and loads courier’s own truck.
Payment terms for EXW transactions are generally cash in advance and open account.”

As mentioned in the ICC Guide to Incoterms 2010, parties sometimes insert a term
“loaded” following the reference to EXW Incoterm, i.e., EXW loaded, into their sales
contract. Such an addition is normally intended to extend responsibility to loading
operations. However, without further clarification, it is rather difficult to say whether
such a term means “loaded at seller’s risk” or “loaded at buyer’s risk” and is subject to
interpretation in case of dispute. In this respect, if “loaded” is meant to extend the
liability to the seller, the parties may consider inserting the FCA Incoterm (see below),
and not EXW, into their contract. However, they should bear in mind that the FCA
Incoterm requires that the obligation to clear the goods for export be borne by the seller
as well. 

b) FCA Incoterm (Free Carrier)

Under the FCA Incoterm, the delivery of goods occurs as follows:

 When the named place of delivery is the seller’s premises, the goods are deemed to be
delivered when they are loaded on the transportation vehicle arranged by the buyer;
 When the named place of delivery is elsewhere, e.g., a warehouse or factory, etc., the
goods are deemed to be delivered when the following requirements are met: after
having been loaded on the seller’s transportation vehicle, they reach the named place,
are ready for unloading from the seller’s transportation vehicle and are placed at the
disposal of the carrier nominated by the buyer.
Regarding the carrier, it is usually “a firm that itself transports goods or passengers for
hire, rather than simply arranging for such transport. Examples are a shipping line,
airline trucking firm, or railway. In the FCA term, however, the carrier can by any
person who by contract ‘undertakes to perform or procure’ such services”.

In 2020, several new obligations were added to the FCA Incoterm. For example, the
parties may agree that the buyer instructs the carrier to issue the transport document (bill
of landing) with the on-board notation to the seller. In turn, the seller undertakes to send
this document to the buyer, “who will need the bill of landing in order to obtain
discharge of the goods from the carrier.”

The FCA Incoterm further requires the seller to clear the goods for export, where
applicable. However, the seller has no obligation to clear the goods for import. No
insurance obligation is placed either on the seller or the buyer.

c) CPT Incoterm (Carriage Paid to)

Under the CPT Incoterm, the delivery of the goods occurs when they are delivered by
the seller to the carrier at the agreed place or are procured by the seller so delivered. In
this respect, the seller has an obligation to contract, at its expense, for the carriage of the
goods from the point of delivery to the place of destination of the goods. The existence
of the contract of carriage has no impact on the transfer of risk from the seller to the
buyer which occurs at the point of delivery, i.e., by handing over the goods to the
carrier.[11] However, if the seller incurs costs relating to unloading of goods at the
place of destination under the contract of carriage, it must bear them, unless otherwise
agreed.

The CPT Incoterm also requires that the seller clear the goods for export, where
applicable, and assume all risk related thereto. However, the seller has no such
obligation for import. Neither the seller, nor the buyer, is required to conclude an
insurance contract.

d) CIP Incoterm (Carriage and Insurance Paid to)

Under the CIP Incoterm, the seller has the same obligations as under the CPT Incoterm,
i.e., to hand over the goods to the carrier contracted by the seller and to clear the goods
for export,[12] with the addition of an obligation to contract for insurance in order to
cover against the buyer’s risk/damage to the goods from the place of delivery to, at
least, the place of destination.
Regarding insurance, it shall be made in conformity with Clauses (A) of the Institute
Cargo Clauses, or similar clauses, and shall cover, at a minimum, the contractual price
plus 10%. Prior to the 2020 revision of the Incoterms, only a minimum insurance
coverage pursuant to Clauses (C) of the Institute Cargo Clauses was required.
[13] However, even today, the parties can agree on a lower coverage.[14] Once
contracted, the seller has an obligation to provide the insurance policy or certificate to
the buyer.

e) DAP Incoterm (Delivered at Place)

This Incoterm is normally used in cases when the parties do not wish that the seller bear
the risk and cost of unloading, contrary to the DPU Incoterm (see below). Under the
DAP Incoterm, the goods are deemed delivered by the seller to the buyer when they are
put at the disposal of the buyer on the transportation vehicle ready for unloading at the
place of destination or an agreed point within such place, if any. Contrary to the
CPT/CIP Incoterms, the place of delivery and the place of destination are the same
under the DAP Incoterm. Therefore, the seller bears the risk until it has put the goods at
the disposal of the buyer at the place of destination as described above.

Although it has an obligation to conclude a contract of carriage or arrange at its costs for
the carriage of the goods and to clear the goods for export (not import), the seller is not
required to unload the goods from the transportation vehicle at the place of destination.
In addition, neither the seller, nor the buyer, is required to subscribe an insurance
contract.

f) DPU Incoterm (Delivered at Place Unloaded)

The DPU Incoterm represents a new feature of the 2020 Incoterms which has replaced
the DAT Incoterm (Delivered at Terminal) established under the 2010 Incoterms which,
in turn, had replaced DEQ Incoterm (Delivered ex Quay) established under the 2000
Incoterms.

According to the DPU Incoterm, the delivery of the goods by the seller to the buyer
occurs when the goods are unloaded from the transportation vehicle and put at the
disposal of the buyer at the place of destination or at the agreed point within the place of
destination, if any. It is the only Incoterm “that requires the seller to unload goods at
destination.” Again, the place of delivery and the place of destination are the same
under the DPU Incoterm. Therefore, the seller bears the risk until it has unloaded the
goods at the place of destination.

In addition, the seller undertakes to conclude a contract for carriage or arrange carriage
at its own expense. It also has an obligation to clear the goods for export.  However, no
such obligation is imposed for import. The buyer is required to assist the seller in
obtaining relevant documentation for export clearance formalities, at the seller’s
expenses.

Contrary to the CIP Incoterm, the seller (or the buyer) has no obligation to contract
insurance under the DPU Incoterm.

g) DDP Incoterm (Delivered Duty Paid)

Under the DDP Incoterm, the goods are supposed to be delivered by the seller to the
buyer if they are placed at the disposal of the buyer, cleared for import, on the arriving
transportation vehicle, ready for unloading at the place of destination or an agreed point
within such place, if any.[18] The DDP Incoterm imposes the maximum responsibility
on the seller as it is the only Incoterm requiring import clearance by the seller.[19]

As in the case of the other Incoterms, the DDP Incoterm requires that the seller
conclude the contract of carriage or otherwise arrange the carriage at its expense. No
insurance contract is, however, required from the seller/the buyer.

5.2. Basic Features of Incoterms Used for Sea and Inland Waterway
Transport

a) FAS Incoterm (Free Alongside Ship)

According to the FAS Incoterm, the seller delivers the goods when it either places them
alongside the ship/vessel nominated by the buyer at the named port of shipment or it
procures the goods so delivered.[20] The risk/damage to the goods is transferred from
the seller to the buyer when the goods are alongside the ship. The seller undertakes to
clear the goods for export, not import.
The seller is under no obligation to conclude a contract of carriage. In turn, it is the
buyer who bears all expenses regarding the carriage of the goods from the named port
of shipment. Consequently, the FAS Incoterm is not suited for cases when the goods are
only to be handed over to the carrier, e.g., at a container terminal, before they are placed
alongside the ship. For this scenario, the above-mentioned FAS Incoterm is more
appropriate.

Furthermore, the seller has an obligation to clear the goods for export (not import). It is
not required to conclude any insurance.

b) FOB Incoterm (Free on Board)

Under the FOB Incoterm, the goods are deemed to be delivered by the seller to the
buyer when they are delivered on board the ship nominated by the buyer at the named
port of shipment or the seller procures the goods so delivered.[22] Therefore, the risk of
loss/damage to the goods is shifted onto the buyer once the goods are placed on board
the ship. The seller shall clear the goods for export, not import.

As in the case of the FSA Incoterm, the seller has no obligation to conclude a contract
of carriage. All expenses regarding the carriage of the goods from the named port of
shipment shall be borne by the buyer.

No insurance is required under the FOB Incoterm to be concluded by the seller or the
buyer.

c) CFR Incoterm (Cost and Freight)

 According to the CFR Incoterm, the seller delivers the goods to the buyer by placing
them on board the ship or procuring them so delivered.[23] Therefore, the risk of loss
of/damage to goods is shifted on the buyer when the goods are place on board of vessel
at the port of delivery, and not the port of destination as in the case of the above-
referenced FOB Incoterm.

Regardless of the transfer of risk at the port of delivery, the seller has an obligation to
conclude a contract of carriage of the goods until the port of destination. The seller also
must bear all costs related to unloading at the port of destination resulting from the the
contract of carriage, unless agreed otherwise. It also has an obligation to clear the goods
for export, not import. No insurance contract is required from the seller or the buyer.

d) CIF Incoterm (Cost, Insurance and Freight)

The regime of the CIF Incoterm is very similar to the one under the CFR Incoterm:

 the goods are to be delivered under the CIF Incoterm when the seller places them on
board the ship or procures them so delivered;[24]
 although the transfer of risk takes place at the port of delivery, the seller has an
obligation to conclude a contract of carriage of the goods until the port of destination;
 the seller  must bear all costs related to unloading at the port of destination resulting
from the the contract of carriage, unless agreed otherwise;
 the seller has an obligation to clear the goods for export, not import.
The principal difference between CIF and CFR resides in the requirement under the CIF
Incoterm for the seller to conclude insurance covering against the buyer’s risk of loss
of/damage to the goods from the port of shipment to, at least, the port of destination.
However, contrary to the CIP Incoterm (see above), the seller is required to obtain a
minimum insurance according to Clauses (C) of the Institute Cargo Clauses, or other
clause (not Clauses (A) of the Institute Cargo Clauses as required for the CIP
Incoterm).

6. Advantages

One of the primary benefits is the simplification of contractual terms.

When Incoterms exist, they are often used in commercial contracts, ensuring a single
form of interpretation of the terms, saving time and money that was previously often
wasted by misinterpretations of the contractual terms. In this way, the Incoterms have
been an important tool for the development of international trade.

They offer a way for all companies that use terminology to understand its meaning.
These terms help carriers and buyers understand the different types of situations that
merchandise shipments involve. The incoterms allow buyers and carriers to understand
who owns the goods at each stage of the shipment, as well as who pays the shipping
costs. This advantage allows companies to avoid misunderstandings in all types of
international maritime activities.
The most important advantage of Incoterms lies in contractually defining each party’s
responsibilities during the transaction:

 the ownership transfer point (the point from which you no longer own the
goods),
 The company responsible for the choice of the carrier, or transporter.
 Who incurs the cost of transport.
 Who incurs the insurance costs,
 Who is responsible for the import and export customs clearance,
 Who incurs the packaging costs,

Each incoterm has its own drawbacks.

7. Disadvantages

One disadvantage is that many companies cannot keep up with all the modifications that
take place. This can leave some companies in an advantageous situation, and yet others
at a disadvantage. Another problem with incoterms is that shipping companies and
buyers have different preferences as to the terms they should use. Sellers often choose
CIF because they have a better understanding of their shipments, buyers often choose
FOB for the same reasons. These two types are the most used incoterms. This problem
can be seen as an advantage or disadvantage depending on the perspective. Another
disadvantage of incoterms is that many transport companies try to benefit from them.
They often cite shipments using one method and purchases using another. The reason
for this is to save money and gain more control over the merchandise.

8. The Importance of Incoterms

The Incoterms are important because they allow the exporter to calculate how much he
will spend. These norms were developed to settle conflicts between importers and
exporters, arising from misinterpretation of contracts

Everyone in your organization who has a role in your international transactions should
be familiar with the terms. If you are an exporter, that includes your international sales
force.
If you are an importer, that means your purchasing agents and buyers. Regardless if you
are a seller or a buyer, that also includes your accounting department, logistics and
transportation departments, senior managers and others.

When a seller and a buyer agree to employ a particular Incoterm, each accepts the
corresponding obligations and responsibilities as clearly set forth and defined under that
particular Incoterm. Incoterms reduce the risk of legal complications by giving buyers
and sellers a single home base from which to reference trade practices.

By correctly using Incoterms, you’ll be able to partner more harmoniously, transport

and deliver your goods more easily and get paid more quickly. And who doesn’t want
that?

Incoterms play too important of a role in international transactions to leave their usage
up to chance.

9. Conclusion
At a time when society is experiencing a health crisis and the global economy is going
through a movement already seen in international trade, where countries needed to
move in order to meet the health with hospital equipment, the international import and
export contracts have never been so evident with regard to the exchange of
responsibilities between importers and exporters.

Therefore, foreign trade operations must take into account several aspects that are
interconnected, but can be analyzed separately.

In view of all the above on the importance of Incoterms, we need to understand that it
has become the main guiding element for the standardization of international language
with regard to the costs of delivering goods. obligations of sellers and buyers that are
established in the purchase and sale agreement with regard to the following conditions:
Freight, insurance, handling in terminals, customs clearance and obtaining documents of
an international contract

The Incoterms is a great tool to mark out an international sale or purchase, because it
establishes both the starting point and the delivery point of the goods and also defines
the responsibilities in the process between seller and buyer, thus leaving clearer rules on
costs and risks in the transaction between the parties.

10. Bibliographic references

https://en.wikipedia.org/wiki/Incoterms#Defined_terms_in_Incoterms

https://www.acerislaw.com/incoterms-in-international-trade/

https://www.dhl.com/content/dam/dhl/global/dhl-global-forwarding/documents/pdf/dhl-
glo-dgf-incoterms-2010-brochure.pdf

J. Coetzee, Incoterms: Development and Legal Nature – A Brief Overview,

13 Stellenbosch Law Review 2002, p. 116.

 Incoterms 2020, ICC Rules for the Use of Domestic and International Trade Terms, p.
20.
 Incoterms 2020, ICC Rules for the Use of Domestic and International Trade Terms, p.
23.

D. M. Stapleton, V. Pande, D. O’Brien, EXW, FOB or FCA ? Choosing the right

Incoterms and why it matters to maritime shippers, 81 Journal of Transportation Law,
Logistics & Policy 2014, p. 248. See also G. Gibbons, The Impact of Incoterms 2010,
4 Irish Business Law Quarterly 2012, p. 16.

D. M. Stapleton, V. Pande, D. O’Brien, EXW, FOB or FCA ? Choosing the right

Incoterms and why it matters to maritime shippers, 81 Journal of Transportation Law,
Logistics & Policy 2014, p. 248.

 J. Ramberg, ICC Guide to Incoterms 2010, ICC Publication (2011), pp. 22 and 42.