Incoterms 2010

Incoterms 2010
is the eighth set of pre-defined international contract terms published by the International Chamber of Commerce,
with the first set having been published in 1936. Incoterms 2010 defines 11 rules, down from the 13 rules defined by Incoterms 2000.Four
rules of the 2000 version (“Delivered at Frontier”, DAF; “Delivered Ex Ship”, DES; “Delivered Ex Quay”, DEQ; “Delivered Duty Unpaid”, DDU). are replaced by
two new rules (“Delivered at Terminal”, DAT; “Delivered at Place”, DAP) in the 2010 rules.

In the prior version, the rules were divided into four categories, but the 11 pre-defined terms of Incoterms 2010 are subdivided into two
categories based only on method of delivery. The larger group of seven rules may be used regardless of the method of transport, with the smaller
group of four being applicable only to sales that solely involve transportation by water where the condition of the goods can be verified at the point of
loading on board ship. They are therefore not to be used for containerized freight, other combined transport methods, or for transport by road, air or
rail.

Incoterms in Government Regulations

In some jurisdictions, the duty costs of the goods may be calculated against a specific Incoterm (for example in India, duty is calculated against the CIF
value of the goods,[5] and in South Africa the duty is calculated against the
FOB value of the goods[6]). Because of this it is common for contracts for
exports to these countries to use these Incoterms, even when they are not suitable for the chosen mode of transport. If this is the case then great care
must be exercised to ensure that the points at which costs and risks pass are clarified with the customer.

Rules for any mode of transport

EXW – Ex Works (named place of delivery)

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 (named place of delivery)

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 (named place of destination)

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 (named place of destination)

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 (named terminal at port or place of destination)

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.

DAP – Delivered At Place (named place of destination)

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 (named place of destination)

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 [7]

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)’. [8]

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 (named port of shipment)

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 (named port of shipment)

See also: FOB (Shipping)

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 (named port of destination)

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 & Freight (named port of destination)

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.

Allocations of costs to buyer/seller according to Incoterms 2010

Incoterm 2010

Export customs declaration

Carriage to port of export

Unloading of truck in port of export

Loading on vessel/airplane in port of export

Carriage (Sea/Air) to port of import

Insurance

Unloading in port of import

Loading on truck in port of import

Carriage to place of destination

Import customs clearance

Import duties

EXW

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

FCA

Seller

Seller

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

FAS

Seller

Seller

Seller

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

FOB

Seller

Seller

Seller

Seller

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

Buyer

CPT

Seller

Seller

Seller

Seller

Seller

Buyer

Seller

Buyer/Seller

Seller

Buyer

Buyer

CFR(CNF)

Seller

Seller

Seller

Seller

Seller

Buyer

Buyer/Seller

Buyer

Buyer

Buyer

Buyer

CIF

Seller

Seller

Seller

Seller

Seller

Seller

Buyer/Seller

Buyer

Buyer

Buyer

Buyer

CIP

Seller

Seller

Seller

Seller

Seller

Seller

Seller

Buyer/Seller

Seller

Buyer

Buyer

DAT

Seller

Seller

Seller

Seller

Seller

Seller/Buyer

Seller

Buyer

Buyer

Buyer

Buyer

DAP

Seller

Seller

Seller

Seller

Seller

Seller/Buyer

Seller

Seller

Seller

Buyer

Buyer

DDP

Seller

Seller

Seller

Seller

Seller

Seller/Buyer

Seller

Seller

Seller

Seller

Seller