Incoterms enjoy worldwide recognition and, through their universal implementation, accurately reflect the standard for carrying out international trade practices. Incoterms closely correspond to the U. N. Convention on Contracts for the International Sales of Goods.
The question and answer format is used for simplicity and ease of understanding.
Q: What does the acronym Incoterms stand for?
A: The acronym means International commerce terms.
Q: What are Incoterms?
A: Incoterms are the official International Chamber of Commerce (ICC) rules for the explanation of trade terms. Incoterms are administered by the ICC in Paris and are adhered to by all major trading nations of the world. Incoterms are the authoritative text for determining how costs and risks are allocated to the parties conducting international transactions.
Q: What do Incoterms do?
A: Incoterms facilitate the conduct of international business by defining the responsibilities of the involved participants.
A: Incoterms help establish and execute an international transaction by defining distinct obligations and responsibilities between buyers and sellers. The buyer's and seller's agreement to use a particular Incoterm pursuant to the international transaction will by definition have implications for other services needed to perform the transaction such as contracts of carriage, insurance and payment.
Q: What is the purpose of Incoterms?
A: Incoterms provide a set of rules for the interpretation of commonly used trade terms in foreign trade. Reference to Incoterms in a sales contract defines clearly the parties' respective obligations and responsibilities thereby reducing the risk of multi-jurisdictional legal complications.
Q: Why did Incoterms come about?
A: Differences in trading practices and legal interpretations between traders of different countries necessitated a need for a common set of rules. These rules needed to be easy to understand by all of the participants in order to prevent misunderstandings, disputes and litigation.
Q: When were Incoterms created?
A: Incoterms were first created in 1936 and were designated Incoterms 1936.
Q: How have Incoterms evolved?
A: Incoterms have evolved into the codified worldwide contractual standard and are periodically updated with the progressive evolution of international trade. Amendments and additions were made in 1953, 1967, 1976, 1980, 2000 and 2010. Presently, Incoterms 2010 govern transactions reflecting changes in security procedures instituted in response to a more dangerous world.
Q: What revisions were made in Incoterms 2010?
A: Incoterms 2010 reduced the number of terms from 13 to 11 and organizes them by the mode of transportation:
Any mode of transport
EXW, FCA, CPT, CIP, DAT, DAP, DDP
Sea and inland waterway transport
FAS, FOB, CFR, CIF
Q: How many Incoterms are there?
A: The complete set consists of 11 Incoterms.
Q: What responsibilities and obligations of the buyer and seller are listed in the Incoterms?
A: There are obligations and responsibilities for the seller and the buyer defined under each of the Incoterms. When a seller and a buyer agree to employ a particular Incoterm, each accepts the corresponding obligations and responsibilities as clearly set forth and defined under that particular Incoterm.
Q: What are the 11 Incoterms 2010?
A: The 11 Incoterms are shown below:
- EXW – Ex Works (named place)
- FCA – Free Carrier (named place)
- FAS – Free Alongside Ship (named loading port)
- FOB – Free on Board (named loading port)
- CFR – Cost and Freight (named destination port)
- CIF – Cost, Insurance and Freight (named destination port)
- CPT – Carriage Paid To (Named place of destination)
- CIP – Carriage and Insurance Paid (To) (named place of destination)
- DAT – Delivered at Terminal (named port)
- DAP – Delivered at Place (named place)
- DDP – Delivered Duty Paid (named destination place)
Q: Where can I find more information about Incoterms?
A: The International Trade Blog has published several articles related to Incoterms 2010:
- Incoterms Lesson: The Danger of Using Ex Works for Your Exports
- A Behind the Scenes Look at Incoterms
- Incoterms 2010: Freight and Associated Charges
- The Beginner's Introduction to Incoterms
- Where Does Risk Pass in Your International Shipment?
- Incoterms 2010 Rules: Revisiting the Correct Usage of the Terms
This article was first published in March 2010, and has been updated to include current information, links and formatting.