Incoterms

There are no international conventions in force governing contracts for the international sale of goods, so disputes and misunderstandings have often arisen between buyers and sellers, mainly because of different interpretations about the terms used in the contracts. In order to avoid such situations which hinder the smooth flow of international trade, the International Chamber of Commerce has evolved standardized trade terms known as the “Incoterms” (International rules for the interpretation of trade terms).

These terms deal with delivery conditions between the buyer and seller, and their main purpose is to apportion the costs and risks of the transport movement and related operations between the two parties. In other words, these terms determine at what points the seller has fulfilled his obligations so that the goods in a legal sense could be said to have been delivered to the buyer. Incoterms are optional in the sense that they become operative only when the parties to the contract agree to apply them.

The Incoterms were first published in 1936. Amendments and additions were later made in 1953, 1967, 1976, 1980 and again in 1990 in order to bring the rules into line with current international trade practices.

The main reason for the 1990 revision was the desire to adapt terms to the increasing use of electronic data interchange (EDI). A further reason for the revision stems from changed transportation techniques, particularly the unitization of cargo in containers, multimodal transport and roll on/roll­off (ro ro) traffic with road vehicles and railway wagons in “shortsea” maritime transport In Incoterms 1990 the term “Free carrier . . . . named place” (FCA) has now been adapted to suit all types of transport irrespective of the mode and combination of different modes. As a consequence, the terms which appear in the previous version of Incoterms dealing with some particular modes of transport (FOR/FOT and FOB Airport) have taken removed.

There are 13 Incoterms containing standard definitions. The texts of these terms spelling out in detail the obligations of the buyer and the seller are contained in the Incoterms 1990 edition published by the International Chamber of Commerce.

Brief notes indicating the main features of each of the Incoterms (the primary duties of the seller and the buyer and the advantages or disadvantages, if any, to either of them) are, however, given in the following pages.
Based on the Incoterms, some northern European countries such as Swedenhave introduced what is known as “Combiterms” which seek to define more precisely the responsibility for certain types of expenses which has been left rather vague in the Incoterms. The Combiterms, however, do not seem to have been used in countries outside northern Europe. The revised version of the Incoterms is expected to rectify this position.

9.1 NEW METHOD OF PRESENTING INCOTERMS
For easier reading and understanding, the 1990 revision of Incoterms has grouped the terms into four different categories.

9.1.1 “E” term
The seller makes the goods available to the buyer at the seller’s own premises
- EXW Ex Works

9.1.2 “F” terms
The seller is called upon to deliver the goods to a carrier appointed by the buyer
- FCA Free Carder
- FAS Free Alongside Ship
- FOB Free On Board

9.1.3 “C” terms
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 and dispatch
- CFR Cost and Freight
- CIF Cost, Insurance and Freight
- CPT Carriage Paid To
- CIP Carriage and Insurance Paid To

9.1.4 “D” terms
The seller has to bear all costs and risks needed to bring the goods to the country of destination
DAF Delivered At Frontier
DES Delivered Ex Ship
DEQ Delivered Ex Quay
DDU Delivered Duty Unpaid
DDP Delivered Duty Paid
The term “Ex Works” represents the seller’s minimum obligation, his only responsibility being to make the goods available at his premises. The term “Delivered Duty Paid” represents the other extreme, denoting the sellers maximum obligation, as he has to meet all the expenses incidental to the delivery of the goods at the named place of destination. The remaining terms fall between these two extremes.
A chart setting out this new classification is given below. Please study this chart carefully.

Incoterm 1990

In the 1980 version of the incoterms, the terms were categorized as follows:

1. Goods moving at buyer’s risk and costs:
   - Ex-Works
   - Free Carrier
   - Free On Board
   - Free Alongside Ship
2. Goods moving at buyer’s risk and seller’s cost:
   - Cost and Freight
   - Cost, Insurance and Freight
   - Carriage Paid To
   - Carriage and Insurance Paid TO
3. Goods moving at seller’s risks and costs:
   - Delivered Ex Ship
   - Delivered Ex Quay
   - Delivered Duty Unpaid
   - Delivered Duty Paid