Incoterms, short for International Commercial Terms, are a set of global rules established by the International Chamber of Commerce (ICC) that define the responsibilities of sellers and buyers for the delivery of goods under sales contracts. They are used worldwide to clarify the tasks, costs, and risks involved in the transportation and delivery of goods from sellers to buyers.
The primary aim of Incoterms is to provide a universal set of rules that clearly communicate the obligations, costs, and risks associated with the international and domestic transportation and delivery of cargo. By doing so, Incoterms help prevent misunderstandings and disputes between sellers and buyers, facilitating smoother international trade.
The Structure of Incoterms
Incoterms are categorised into two groups based on the mode of transport used:
- Any Mode(s) of Transport: These are applicable to any type of transportation, including road, rail, air, and sea. Examples include EXW (Ex Works), FCA (Free Carrier), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), DAP (Delivered at Place), DPU (Delivered at Place Unloaded), and DDP (Delivered Duty Paid).
- Sea and Inland Waterway Transport Only: These are specifically for goods transported by sea or inland waterway. Examples include FAS (Free Alongside Ship), FOB (Free on Board), CFR (Cost and Freight), and CIF (Cost, Insurance, and Freight).