Incoterms

What are Incoterms?
Learn the most commonly used terms in this unique field

What are Incoterms?

Learn the most commonly used terms in this unique field

?What are Incoterms

Incoterms are international trade terms. In other words, Incoterms is a set of trade rules and regulations used by the International Trade Organization to determine responsibilities and duties, transportation and logistics.
The rules and regulations related to Incoterms include insurance, freight, transportation, logistics, duties, responsibilities, damage. Companies and the country of origin and destination can use Incoterms to specify the transportation rules in detail to avoid any ambiguities.

؟What are Incoterms

Incoterms is a combination of three English words (International Commercial Terms) which includes international commercial terms. In other words, Incoterms is a set of commercial rules and regulations used by the International Trade Organization to determine responsibilities and duties, transportation and logistics.
The rules and regulations related to Incoterms include insurance, freight, transportation, logistics, duties, responsibilities, damage. Companies and the country of origin and destination can use Incoterms to specify the transportation rules in detail to avoid any ambiguities.

Types of Incoterms

Group E in Incoterms

(Delivery of goods at origin)

This group of goods starts from the exporting country (origin).

∴ EXW (EX Works)

The EXW Incoterms are air transport methods that deliver the goods at the place of work, which means that the goods must be delivered at their place of work, such as (warehouse, factory and workshop).

It also does not have responsibility for the method of transportation and customs clearance of the goods and does not do so in this regard. Also, all risks arising from the transport of the goods from the seller’s place of work are transferred to the buyer.

Group F in Incoterms

(delivery of goods to the buyer excluding freight)

This group is for the sale of goods that are delivered at the airport or port of the country of origin and the buyer is responsible for transporting the goods.

∴ FCA (Free Carrier)

This term is from the Incoterms for land transport, where delivery to the carrier means that the seller’s obligation and responsibility is only until the goods are delivered to the carrier and then he has no obligation for the goods. If the named place is not specified by the buyer, the seller can choose the place where he delivers the goods to the carrier.

Incoterms Group F (Delivered to Buyer, Freight Paid)

This group is for the sale of goods that are delivered at the airport or port of the country of origin, and the buyer is responsible for transporting the goods.

∴ FCA (Delivered to Carrier)

This term from Incoterms is for land transportation, where delivery to the carrier means that the seller’s obligation and responsibility is only until the goods are delivered to the carrier and after that he has no obligation for the goods. If the named place is not specified by the buyer, the seller can choose the place where he delivers the goods to the carrier.

∴ FAS (Free Alongside Ship)

Delivery alongside the ship and at the port means that the seller’s responsibility ends when the goods are delivered to the buyer at the port, and from then on the buyer is responsible for the transportation and its costs. Also, if a problem arises for any reason during this route after the goods are delivered, the buyer is responsible.

∴ FOB (Free On Board)

Incoterms FOB is one of the sea transport terms that means that the seller’s responsibility and duty ends when the goods pass the ship’s rail at the specified port. From this point on, the buyer is responsible for the cost of transporting the goods or the responsibility for the loss of the goods and has nothing to do with the seller.

∴ FAS (Free Alongside Ship)

Delivery alongside the ship and at the port means that the seller’s responsibility ends when the goods are delivered to the buyer at the port, and from then on the buyer is responsible for the transportation and its costs. Also, if a problem arises for any reason during this route after the goods are delivered, the buyer is responsible.

∴ FOB (Free On Board)

Incoterms FOB is one of the sea transport terms that means that the seller’s responsibility and duty ends when the goods pass the ship’s rail at the specified port. From this point on, the buyer is responsible for the cost of transporting the goods or the responsibility for the loss of the goods and has nothing to do with the seller.

∴ FAS (Free Alongside Ship)

Delivery alongside the ship and at the port means that the seller’s responsibility ends when the goods are delivered to the buyer at the port, and from then on the buyer is responsible for the transportation and its costs. Also, if a problem arises for any reason during this route after the goods are delivered, the buyer is responsible.

∴ FOB (Free On Board)

Incoterms FOB is one of the sea transport terms that means that the seller’s responsibility and duty ends when the goods pass the ship’s rail at the specified port. From this point on, the buyer is responsible for the cost of transporting the goods or the responsibility for the loss of the goods and has nothing to do with the seller.

Group C (Delivered at Origin with Freight)

∴ CFR (Carriage Cost)

In this term, the seller must pay the cost of transporting the goods from the origin to the port of destination that has been determined in advance. However, the seller is not responsible for the loss of the goods or its incidental costs from the time the goods are delivered to the buyer, and the buyer assumes the responsibility.

Group C (delivery of goods at origin with freight)

∴ CFR (Carriage Cost)

In this term, the seller must pay the cost of transporting the goods from the origin to the destination port that has been determined in advance. However, the seller is not responsible for the loss of the goods or its incidental costs from the time the goods are delivered to the buyer, and the buyer assumes the responsibility.

∴ CIF (Carriage Cost and Insurance)

The CIF term of Incoterms is one of the methods of sea transportation and means that the seller has the duties of the CFR term (Carriage Cost of Goods). Also, in addition to the cost of transporting the goods, the cost of marine insurance and possible damage to the goods is the responsibility of the seller. In this term, the seller is only obliged to pay the minimum insurance for the transfer of the goods.

∴ CPT (Carriage Cost to Destination)

The cost of transporting the goods to the designated destination is the responsibility of the seller. The responsibility for the loss of the goods or possible damage to the goods from the time the responsibility of the goods is with the carrier is the responsibility of the buyer and the seller has no obligation.

∴ CIP (Carriage of goods to destination with insurance)

The CIP term is an Incoterms of air transportation in which the cost of transporting the goods to the designated destination with insurance is the responsibility of the seller and so far it is the same as the CPT term. In addition, he must also obtain and pay for insurance against possible damage to or loss of the goods. Please note that under the CIP term, the seller is required to pay for the minimum insurance.

∴ CIF (Carriage Cost and Insurance)

The CIF term of Incoterms is one of the methods of sea transportation and means that the seller has the duties of the CFR term (Carriage Cost of Goods). Also, in addition to the cost of transporting the goods, the cost of marine insurance and possible damage to the goods is the responsibility of the seller. In this term, the seller is only obliged to pay the minimum insurance for the transfer of the goods.

∴ CPT (Carriage Cost to Destination)

The cost of transporting the goods to the designated destination is the responsibility of the seller. The responsibility for the loss of the goods or possible damage to the goods from the time the responsibility of the goods is with the carrier is the responsibility of the buyer and the seller has no obligation.

∴ CIP (Carriage of goods to destination with insurance)

The CIP term is an Incoterms of air transportation in which the cost of transporting the goods to the designated destination with insurance is the responsibility of the seller and so far it is the same as the CPT term. In addition, he must also obtain and pay for insurance against possible damage to or loss of the goods. Please note that under the CIP term, the seller is required to pay for the minimum insurance.

Group D (Delivered at Destination)

Group D is related to the delivery of goods at the destination, which has 5 categories.

∴ DAF (Delivered at Named Frontier)

The seller’s duty and responsibility to deliver the goods to the buyer ends when the seller clears the goods for export. In this term, the border must be precisely specified and any border adjacent to the country of export can be used.

∴ DES (Delivered Ship Named Port of Destination)

The seller’s duty to deliver the goods to the buyer ends when the goods are delivered to the buyer on board the ship before clearance for entry into the named port. In this Incoterms term, the seller must bear the risk of loss or damage to the goods until they are brought to the named port. This term is used for inland waterway or sea transport.

∴ DEQ (Delivered at Named Quay)

The seller’s delivery and obligation to deliver the goods to the buyer ends when he hands over the goods to the buyer after clearance at the named port. In this term, the seller must bear the duties and taxes of the goods and possible damages until the goods are sent to the quay.

∴ DDU (Delivered at Destination Duty Free)

This term means that the seller’s responsibility ends when the goods are delivered to the buyer at the named place in the country of destination. In DDU, the seller must bear the cost of customs formalities and the seller is responsible for all responsibilities for bringing the goods to the destination except for customs taxes and duties and other import costs.

∴ DDP (Delivered at Destination Duty Free)

DDP is one of the Incoterms terms and means that the seller’s obligation ends when the goods are delivered to the buyer at the named place of destination.

In this DDP term, the seller must bear the cost of taxes and customs duties and possible damages to the goods, including loss of goods.

Among the types of Incoterms, EXW has the least duty and responsibility for the seller, and the DDP term has the most responsibility for the seller.

Group D (Delivered at Destination)

Group D is related to the delivery of goods at the destination, which has 5 categories.

∴ DAF (Delivered at Named Frontier)

The seller’s duty and responsibility to deliver the goods to the buyer ends when the seller clears the goods for export. In this term, the border must be precisely specified and any border adjacent to the country of export can be used.

∴ DES (Delivered Ship Named Port of Destination)

The seller’s duty to deliver the goods to the buyer ends when the goods are delivered to the buyer on board the ship before clearance for entry into the named port. In this Incoterms term, the seller must bear the risk of loss or damage to the goods until they are brought to the named port. This term is used for inland waterway or sea transport.

∴ DEQ (Delivered at Named Quay)

The seller’s delivery and obligation to deliver the goods to the buyer ends when he hands over the goods to the buyer after clearance at the named port. In this term, the seller must bear the duties and taxes of the goods and possible damages until the goods are sent to the quay.

∴ DDU (Delivered at Destination Duty Free)

This term means that the seller’s responsibility ends when the goods are delivered to the buyer at the named place in the country of destination. In DDU, the seller must bear the cost of customs formalities and the seller is responsible for all responsibilities for bringing the goods to the destination except for customs taxes and duties and other import costs.

∴ DDP (Delivered at Destination Duty Free)

DDP is one of the Incoterms terms and means that the seller’s obligation ends when the goods are delivered to the buyer at the named place of destination.

In this DDP term, the seller must bear the cost of taxes and customs duties and possible damages to the goods, including loss of goods.

Among the types of Incoterms, EXW has the least duty and responsibility for the seller, and the DDP term has the most responsibility for the seller.

Benefits of Incoterms rules

What is the use of Incoterms?

Incoterms rules have main and subsidiary conditions that are set to make the transaction between buyers and sellers transparent. One of the important advantages of Incoterms is that it answers all questions in the field of transportation, transportation and costs. Questions such as:

– What is the method of transporting goods?

– How long does it take to deliver the goods?

– How much does it cost to transport the goods?

Another advantage of Incoterms is that the duties of each party to the contract are clearly clarified. For example, the person who is obliged to cover the insurance and transportation of the goods is determined by Incoterms. Also, the responsibility of the person who must obtain permits related to the export of goods is precisely determined.

The costs related to transportation and transportation are precisely determined by Incoterms, who is responsible for them.

Another advantage of Incoterms is the clarity and transparency of the contract between the two parties.

Sellers and buyers are helped to be legally protected in case of problems in the contract.

Quality assurance is possible with Incoterms and the delivery of all goods is on time.

Another advantage of Incoterms is the reduction of risk in the contract between the two parties, which reduces the risks associated with the delivery of goods and its transportation costs.

Among the advantages of Incoterms is the common language in international trade transactions, which has made the work of merchants and traders easier. By using Incoterms rules, merchants can minimize the ambiguities of their transactions.

What is the use of Incoterms?

Incoterms rules have main and subsidiary conditions that are set to make the transaction between buyers and sellers transparent. One of the important advantages of Incoterms is that it answers all questions in the field of transportation, transportation and costs. Questions such as:

– What is the method of transporting goods?

– How long does it take to deliver the goods?

– How much does it cost to transport the goods?

Another advantage of Incoterms is that the duties of each party to the contract are clearly clarified. For example, the person who is obliged to cover the insurance and transportation of the goods is determined by Incoterms. Also, the responsibility of the person who must obtain permits related to the export of goods is precisely determined.

The costs related to transportation and transportation are precisely determined by Incoterms, who is responsible for them.

Another advantage of Incoterms is the clarity and transparency of the contract between the two parties.

Sellers and buyers are helped to be legally protected in case of problems in the contract.

Quality assurance is possible with Incoterms and the delivery of all goods is on time.

Another advantage of Incoterms is the reduction of risk in the contract between the two parties, which reduces the risks associated with the delivery of goods and its transportation costs.

Among the advantages of Incoterms is the common language in international trade transactions, which has made the work of merchants and traders easier. By using Incoterms rules, merchants can minimize the ambiguities of their transactions.

If you are unsure about choosing the desired Incoterm, contact us for guidance!

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If you are unsure about choosing the desired Incoterm, contact us for guidance!

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?What are the consequences of not using Incoterms rules

The lack of use of Incoterms rules in international transactions has disadvantages. Including:

The existence of ambiguities: One of the disadvantages of using Incoterms rules in commercial transactions between two sellers and buyers is the creation of ambiguities in determining duties and responsibilities.
Lack of protection of the interests of both parties: One of the disadvantages of the lack of Incoterms rules is the creation of problems and the failure to protect the interests of the contracting parties.
The emergence of disputes: Without Incoterms rules, the two parties to commercial transactions may face numerous problems and disputes. Because if there is no common language and specified rules, many ambiguities and problems arise for both sellers and buyers.
Lack of clarity of responsibility and duties: One of the disadvantages of not using the terms rules is the lack of clarity of the duties and responsibilities of buyers and sellers in commercial transactions. Also, without Incoterms rules, the cost of transportation, freight, insurance and possible damage to the goods cannot be accurately determined.
In general, the use of Incoterms rules in international transactions leads to the precise specification of the duties and responsibilities of each buyer and seller, and the failure to use Incoterms rules causes many ambiguities and problems in transactions.

The lack of use of Incoterms rules in international transactions has disadvantages. Including:

The existence of ambiguities: One of the disadvantages of using Incoterms rules in commercial transactions between two sellers and buyers is the creation of ambiguities in determining duties and responsibilities.
Lack of protection of the interests of both parties: One of the disadvantages of the lack of Incoterms rules is the creation of problems and the failure to protect the interests of the contracting parties.
The emergence of disputes: Without Incoterms rules, the two parties to commercial transactions may face numerous problems and disputes. Because if there is no common language and specified rules, many ambiguities and problems arise for both sellers and buyers.
Lack of clarity of responsibility and duties: One of the disadvantages of not using the terms rules is the lack of clarity of the duties and responsibilities of buyers and sellers in commercial transactions. Also, without Incoterms rules, the cost of transportation, freight, insurance and possible damage to the goods cannot be accurately determined.

In general, the use of Incoterms rules in international transactions leads to the precise specification of the duties and responsibilities of each buyer and seller, and the failure to use Incoterms rules causes many ambiguities and problems in transactions.

How to use Incoterms rules

The use of Incoterms rules and terms in transactions is very important, and the following is how to use Incoterms rules and regulations:

Choosing an Incoterms rule: You must choose one of the Incoterms rules according to your situation and specify the responsibilities of each buyer and seller in the transaction.
Conditions: The conditions of transportation of the goods and their details must be explained in full. The type of responsibilities, transportation and its cost, and insurance conditions must be precisely determined.
Creating an agreement: An agreement must be prepared between the buyer and seller to accept the Incoterms rules and terms, and the details of the responsibilities, including transportation costs and insurance conditions, must be specified in it.
Implementation: You must implement the Incoterms rules and conditions and each person must fulfill their responsibilities.
Compliance with Incoterms rules and regulations: You must carefully comply with the Incoterms rules and conditions throughout the contract.

The use of Incoterms rules and terms in transactions is very important, and the following is how to use Incoterms rules and regulations:

Choosing an Incoterms rule: You must choose one of the Incoterms rules according to your situation and specify the responsibilities of each buyer and seller in the transaction.

Conditions: The conditions of transportation of the goods and their details must be explained in full. The type of responsibilities, transportation and its cost, and insurance conditions must be precisely determined.

Creating an agreement: An agreement must be prepared between the buyer and seller to accept the Incoterms rules and terms, and the details of the responsibilities, including transportation costs and insurance conditions, must be specified in it.

Implementation: You must implement the Incoterms rules and conditions and each person must fulfill their responsibilities.

Compliance with Incoterms rules and regulations: You must carefully comply with the Incoterms rules and conditions throughout the contract.

Final Words

In this article, you have become fully acquainted with the Incoterms rules in various modes of transportation and answers to questions such as what are Incoterms rules?

You can get guidance and advice from Gita Arad Darya on the import and export of goods and Incoterms terminology.

Frequently Asked Questions

1- Which modes of transport are Incoterms for?

Incoterms are for all types of sea, land and air transport.

2- Who publishes Incoterms?

Incoterms are published by the International Chamber of Commerce (ICC). The ICC is based in France and has offices in over 100 countries.

Final Words

In this article, you have become fully acquainted with the Incoterms rules in various modes of transportation and answers to questions such as What are Incoterms rules?

You can get guidance and advice from the Gita Arad Darya collection on the import and export of goods and Incoterms terms.

Frequently Asked Questions

1- For which modes of transportation are Incoterms terms?

Incoterms terms are for various modes of transportation by sea, land and air.

2- Who publishes Incoterms rules?

Incoterms rules for commercial transactions are published by the International Chamber of Commerce (ICC). The ICC is based in France and has organizations in more than 100 countries.

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