There are 11 Incoterms, which are for use in domestic and international transactions.
Each one sets out the obligations of the seller and buyer under the sales contract and indicates the point at which responsibility is transferred from seller to buyer. The seller’s obligations escalate from EXW (‘ex-works’ – the minimum) to DDP (‘delivered duty paid’ – the maximum).
Any obligation that does not appear in a particular Incoterm is the responsibility of the buyer unless the sales contract states otherwise.
The 11 Incoterms are divided into two groups: seven that are suitable for any mode or modes of transport; the remaining four applying to sea or inland waterway transport only.
When incorporating an Incoterm into a sales contract, the seller and buyer should take care to ensure that the term selected is appropriate to the agreed point of delivery and the mode of transportation to be used.
The 11 Incoterms are grouped as follows:
◆◆ Group 1: Rules for any mode or modes of transport
–– EXW (‘ex-works’)
–– FCA (‘free carrier’)
–– CPT (‘carriage paid to’)
–– CIP (‘carriage and insurance paid to’)
–– DAT (‘delivered at terminal’)
–– DAP (‘delivered at place’)
–– DDP (‘delivered duty paid’)
◆◆ Group 2: Rules for sea or inland waterway transport only
–– FAS (‘free alongside ship’)
–– FOB (‘free on board’)
–– CFR (‘cost and freight’)
–– CIF (‘cost, insurance and freight’)
Applying the appropriate Incoterm, and the applicable transport and insurance document requirements. The Incoterms are set out in a logical order under each grouping, starting with the term that imposes the least obligation on a seller and ending with that which imposes the most.
Sellers and buyers are advised to review the full content of ICC Publication No. 715 once an Incoterm has been identified so that they understand its full implication and the obligations that it imposes. Irrespective of the chosen Incoterm, the buyer pays for the goods according to the terms of settlement agreed in the sales contract, proforma invoice or purchase order.
Courtesy – ifs University College 2015