The 13 Incoterms rules - FAQs about the basics
Why Incoterms rules?
What do they cover?
What are the 13 Incoterms rules?
What does it take to use Incoterms rules correctly?
Why do Incoterms rules need revising periodically?
Can you name some main innovations in Incoterms 2000?
I keep reading about "E"-terms and "C"-terms. What does that mean?
Why Incoterms rules?
Incoterms rules are international rules that are accepted by governments, legal authorities and practitioners worldwide for the interpretation of the most commonly used terms in international trade. They either reduce or remove altogether uncertainties arising from differing interpretations of such terms in different countries.
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What do they cover?
Incoterms rules describe mainly the tasks, costs and risks involved in the
delivery of goods – excluding intangibles -- from sellers to buyers.
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What are the 13 Incoterms rules?
Each Incoterms rule is referred to by a three-letter abbreviation.
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What does it take to use Incoterms rules correctly?
ICC recommends that "Incoterms 2000" be referred to specifically whenever the terms are used, together with a location. For example, the term "Free Carrier (FCA)" should always be accompanied by a reference to an exact place to which delivery is to be made. To prevent misunderstandings, parties need to make the intended effect of any variants of the three-letter Incoterms rules extremely clear in their contract.
Here are three examples of correct use of Incoterms rules:
FCA Kuala Lumpur Incoterms 2000
FOB Liverpool Incoterms 2000
DDP Frankfurt Schmidt GmbH Warehouse 4 Incoterms 2000
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Why do Incoterms rules need revising periodically?
The main reason is the need to adapt Incoterms rules to contemporary commercial practice. For instance, in the 1990 version, the clauses dealing with the seller's obligation to provide proof of delivery allowed paper documentation to be replaced by e-mail for that purpose for the first time.
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Can you name some main innovations in Incoterms 2000?
They take account of international traders' growing reliance on intermodal transport. Increased use of FCA (Free Carrier) prompted ICC to simplify delivery obligations under this term. A further advantage of the new Incoterms rules is that they clearly allocate the loading and unloading requirements of both buyer and seller.
Two other changes are worth mentioning:
Under FAS (FREE ALONGSIDE SHIP) the seller is required to clear the goods for export. This is a reversal from previous versions of Incoterms rules, which required the buyer to arrange for export clearance.
Under DEQ (DELIVERED EX QUAY) the buyer is required to clear the goods for import and to pay for all formalities, duties, taxes and other charges upon import. This is a reversal from previous versions of Incoterms rules, which required the seller to arrange for import clearance.
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I keep reading about "E"-terms and "C"-terms. What does that mean?
Incoterms 2000, like its immediate predecessor, groups the terms in four categories denoted by the first letter in the three-letter abbreviation.
- Under the "E"-term (EXW), the seller only makes the goods available to the buyer at the seller's own premises. It is the only one of that category.
- Under the "F"-terms (FCA, FAS and FOB), the seller is called upon to deliver the goods to a carrier appointed by the buyer.
- Under the "C"-terms (CFR, CIF, CPT and CIP), the seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional costs due to events occurring after shipment or dispatch.
- Under the "D"-terms (DAF, DES, DEQ, DDU and DDP), the seller has to bear all costs and risks needed to bring the goods to the place of destination.
All terms list the Seller's and the Buyer's obligations. The respective obligations of both parties have been grouped under up to 10 headings where each heading on the seller's side "mirrors" the equivalent position of the buyer. Examples are: Delivery, Transfer of risks, Division of costs.
This layout helps the user to compare the parties' respective obligations under each Incoterm rule.
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