International Commercial Terms (INCOTERMS)  Rules mainly focus on:-

1. OBLIGATIONS
2. COSTS
3. RISKS
   

General Information

• INCOTERMS 2010 launched in September 2010, effective from 01st January 2011.
• INCOTERMS 2020 launched in September 2019, effective from 01st January 2020.

 Both INCOTERMS 2010 and 2020 contains 11 terms  presented in two distinct classes based on modes of transport:--

• 7 INCOTERMS are for any mode of transport.
• 4 INCOTERMS are exclusively for sea and inland waterways transport. 
  

Usage of INCOTERMS

• INCOTERMS are 3-letter terms e.g. CIF, EXW, DDP etc. 

The rules describe:

1. Obligations: Who does what between the buyer and seller; who organizes the carriage or insurance: who obtains the shipping documents and export/import licences; 
2. Risks: Where does risk transfer from seller to buyer;
3. Costs: Which party is responsible for which costs, e.g. transport, packaging, loading, unloading etc.

List of Incoterms

Some important guidelines

• Under both “C” & “D” terms the seller must make arrangements for the carriage of the goods up to the agreed destination.
  

Delivery and destination in Incoterms:-- 

• Delivery point  and destination point could be the same or different. 
• Delivery points signifies transfer of risk & costs. 
• Delivery point is where risk is transferred from seller to buyer.
• Different Incoterms have different delivery points.
  
• DPU is the only term that requires sellers to unload goods at their destination.
• The only difference between DAP and DPU is of loading / unloading

Under D terms, the seller may contract for carriage or arrange for carriage i.e. through its own means of transport.

The ICC has defined each Incoterms 2020 obligations in the following 10 categories:

EXW

Ex Works means that the seller delivers when:

1. it places the goods at the disposal of the buyer at the seller’s premises or 
2. at another named place (i.e. works, factory, warehouse etc.).

Seller:

• does not load goods on any collecting vehicle,
• does not clear the goods for export

FCA

“Free Carrier” means that the seller delivers the goods to the buyer in one or other of two ways:

1. At a named place which is the seller’s premises and goods are loaded on means of transport arranged by the buyer.
2. At another named place and goods are loaded on the seller’s means of transport up to the named place ready for unloading at the disposal of the carrier or another person nominated by the buyer.
3. Name place of delivery should be clearly identified.
4. Goods will be cleared for export by the seller.
   

(New in Incoterm 2020 about FCA)

Requirement of on-board Bill of Lading:

• If the parties have so agreed
• Buyer must instruct the carrier to issue on board BL to the seller.
• The above mechanism rather be substituted with “Received for shipment” BL.

FAS

“Free Alongside Ship” means that the seller delivers the goods:

• when the goods are placed alongside the vessel (e.g. on a quay or a barge) 
• nominated by the buyer 
• at the named port of shipment. 

FAS is used for sea and inland water transport.

Sellers will clear goods for export.

Use of this rule is restricted to goods transported by sea or inland waterway.  In practice it should be used for situations where the seller has direct access to the vessel for loading, e.g. bulk cargos or non-containerised goods. For containerised goods, consider “Free Carrier FCA” instead 

CPT

“Carriage Paid To” means that the seller delivers the goods to the buyer

• By handing them over to the carrier
• Contracted by the seller 
• By giving physical possession of the goods
• At the appropriate place of transport.

 The seller must contract for and pay the costs of carriage.

Goods will be cleared for export by the seller.

CFR

“Cost and Freight” means that the seller delivers the goods:-

•  on board the vessel 
• or procures the goods already so delivered. 
• Seller must contract for carriage.
• This term is used only for sea or inland waterway transport.
• Export clearance is required to be done by Seller.
• It includes FOB.

CIF

“Cost, Insurance and Freight” means that the seller delivers the goods: 

• on board the vessel 
• or procures the goods already so delivered. 
• Seller must contract for carriage.
• Seller must contract for limited insurance cover against the buyer’s risk (ICC Cargo clause C ). Can go for a higher level of cover.

DAT

“Delivered at Terminal” means that the seller delivers when the goods:-

• once unloaded from the arriving means of transport
• are placed at the disposal of the buyer at a named terminal at the named port or place of destination.
• “Terminal” includes any place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. 
• Seller arranges for unloading at the terminal at the named port or place of destination.

DPU (w.e.f. Incoterms 2020)

“Delivered at Place Unloaded” means that the seller delivers when the goods :-

• once unloaded from the arriving means of transport
• are placed at the disposal of the buyer 
• at a named place of destination, or
• At the agreed point within that place. 
• Seller has no obligation to clear the goods for import.

The seller is responsible for arranging carriage and for delivering the goods unloaded from the arriving conveyance, at the named place. 

(An important difference from Delivered at Place Unloaded (DAP), where the seller is responsible for unloading.)

DAP

“Delivered At Place” means that 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, or
• Agreed point within that place.
• The seller bears all risks involved in bringing the goods to the named place.

 The seller is responsible for arranging carriage and for delivering the goods, ready for unloading from the arriving conveyance, at the named place.   

(An important difference from Delivered at Place Unloaded (DPU), where the seller is responsible for unloading.)

DDP

“Delivered Duty Paid” means the seller delivers the goods:- 

• when the goods are placed at the disposal of the buyer,
• cleared for import 
• on the arriving means of transport 
• ready for unloading 
• at the named place of destination.

 Sellers clear the goods both for export and import.

DDP can be used for any transport mode, or where there is more than one transport mode.

The seller is responsible for arranging carriage and delivering the goods at the named place, cleared for import and all applicable taxes and duties paid (e.g. VAT, GST)

Written by : Surinderjit Kaur, former Assistant General Manager & Faculty, State Bank of India