The International Chamber of Commerce (ICC)
La International Chamber of Commerce (ICC) is one of the most important organisations of companies and professionals globally, whose mission is to facilitate international trade through the standardisation of common rules, international contract templates and best practices.
Among the CCI instruments aimed at businesses, the Incoterms® Rules are undoubtedly the best known and most widely used example by operators, as they represent a common language which makes it possible to overcome the different interpretation, due to commercial customs differing from country to country, of contractual clauses concerning the delivery of goods in a national or international sale.
What are Incoterms® rules?
Le Incoterms® Rules – INternational COmmercial TERMS - clearly identify, within a contract, the allocation between seller and buyer of the bonds, of the risks and the expenses connected with the delivery of the goods. The Incoterms® Rules specifically regulate: who, between the two parties, is to enter into the contract of carriage of the goods and any insurance up to the agreed place; who is to take charge of the duties relating to customs clearance for export and import; they also identify where and when delivery of the goods takes place, the time of transfer of risks of damage to the goods from the seller to the buyer and any other expenses relating to the delivery of the goods.
What the Incoterms® Rules do not regulate
Incoterms® Rules are not a contract of sale and therefore do not include many aspects that the counterparties absolutely must agree and regulate in the contract, such as time and manner of payment, transfer of ownership, contractual warranties and liabilities, possible breaches and disputes.
How do they fit correctly into a contract?
Incoterms® rules are rules of a contractual nature: if the parties choose to adopt them to regulate these aspects, they must state in their contract a formula bearing the chosen rule, the agreed place, Incoterms® and the year of the chosen edition, as in the following example: "FCA Genova Incoterms® 2020".
La choice of the Incoterms® rule depends on a plurality of factors: primarily the mode of transport, the type of goods, the route and final destination of the goods, but also the willingness of the parties to bear the costs of the main carriage and any insurance, the ability of the parties to fulfil customs formalities at export and import, and even the form of payment.
The indication of the agreed location immediately after the chosen Incoterms® rule is very important. Not all terms behave in the same way: in the delivery terms belonging to groups E - F - D (i.e. EXW, FCA, FAS, FOB, DAP, DDP and DPU) the agreed place is also the place where delivery is made with the related passing of risk from the seller to the buyer, whereas in the terms belonging to group C (i.e. CPT, CIP, CFR and CIF) the agreed place is the place of destination to which carriage is paid for and arranged by the seller without the seller assuming the risk, risk which has already passed to the buyer at a previous point of delivery. Therefore, for the latter terms, the place of delivery and the place of destination must be contractually stated in as much detail as possible.
The indication of theedition year is very important, because the adoption of a new edition of Incoterms® does not repeal previous editions, and failure to indicate the year could lead to confusion, in the event of litigation, as to which edition to apply, given the differences between them.
How have Incoterms® rules evolved over time?
The ICC began in 1923 a study on the most commonly used trade terms in 13 countries, later expanding the research to 30 countries, highlighting differences in their application and interpretation in trade usage.
Based on these studies, the ICC published in 1936 the first edition of this collection of the most commonly used business practices, which took the name Incoterms® rules, followed by several editions (1953, 1967, 1976, 1980, 1990, 2000, 2010), with changes in both the number of terms and the scope of their interpretation, following the evolution of business practices and incorporating innovations in the field of transport and logistics.
The revision of the ICC yield terms, which has now become a ten-year event, reflects the intention to provide international trade operators with a user-friendly tool that is up-to-date with the most current trade practices.
The latest update of the Incoterms® Rules is in use from 1 January 2020. This latest version has been translated into almost 30 languages, which makes the Incoterms® Rules a truly universal standard that can be used without difficulty by operators all over the world.
Despite the possibility for operators to continue using an earlier edition, it is nevertheless recommended to use the Incoterms® Rules in their latest edition, which certainly reflects the latest practices and is more responsive to operators' needs.
Incoterms® 2020 rules in detail
The rules are distinguished by mode of transport: those for any mode of transport, even combined, and those for maritime transport.
What are the rules for multimodal transport?
Incoterms® rules to be used "for any mode of transport"or for several modes of transport together, are:
- EXW (Ex Works - Franco Fabbrica),
- FCA (Free Carrier - Franco Vettore);
- CPT (Carriage Paid to...);
- CIP (Carriage and Insurance Paid to);
- DAP (Delivery at Place);
- DPU (Delivered at Placed Unloaded);
- DDP (Delivered Duty Paid).
What are the rules for maritime transport?
Incoterms® rules intended to be used for the "maritime and inland waterway transport" are:
- FAS (Free Alongside Ship);
- FOB (Free on Board);
- CFR (Cost and Freight);
- CIF (Cost, Insurance and Freight).
The 11 Incoterms® rules /1
EXW - Ex Works
"Ex works": the seller delivers by placing the goods at the disposal of the buyer at its premises or at another named place (plant, factory, warehouse, etc.), without the obligation to load the goods into the buyer's vehicle or to clear them for export, obligations which, if any, are incumbent on the buyer. This is the term which provides for the minimum of obligations on the part of the seller, but requires caution in the event that the seller also undertakes the loading or needs the documents relating to the proof of exit of the goods.
FCA - Free Carrier
"Free Carrier": the seller delivers by handing over the goods, cleared for export, to the carrier or to another person nominated by the buyer at its premises or another named place. The buyer is obliged to clear the goods for import in the country of destination, as well as to pay any import duties or carry out any customs formalities upon import.
FCA is the recommended deadline for container delivery.
CPT - Carriage Paid To
"Carriage Paid To": the seller delivers by remitting the goods, cleared for export, to the carrier or another person nominated by the seller at an agreed place (if such a place has been agreed between the parties). The buyer is obliged to clear the goods for import in the country of destination, as well as to pay any import duties or carry out any customs formalities on import.
CIP - Carriage and Insurance Paid To
"Carriage and Insurance Paid To": the seller delivers by remitting the goods to the carrier or another person nominated by the seller at an agreed place (if such place has been agreed between the parties), cleared for export. The buyer is obliged to clear the goods for import in the country of destination, as well as to pay any import duties or carry out any customs formalities upon import.
CIP requires the seller to provide maximum insurance cover against the risk of loss of or damage to the goods, although the parties are free to agree on a lower level of cover.
DAP - Delivered At Place
"Delivery at Place of Destination": the seller delivers by placing the goods, cleared for export, at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the risks involved in transporting the goods to the named place. The buyer bears the obligation to clear the goods for import in the country of destination, as well as the obligation to pay any import duties or carry out any customs formalities upon import.
DPU - Delivered at Place Unloaded
"Delivered to Place of Destination Unloaded": the seller delivers by placing the goods, cleared for export, unloaded at the disposal of the buyer at the agreed port or place. Such port or place includes any space, covered or uncovered, such as a dock, warehouse, container yard, road, rail or airport terminal. The seller bears all risks associated with the transport and unloading of the goods at the agreed port or place of destination. The buyer bears the obligation to clear the goods for import in the country of destination, as well as the obligation to pay any import duties or carry out any customs formalities upon import.
DDP - Delivered Duty Paid
"Delivered Duty Paid": the seller delivers by placing the goods at the disposal of the buyer, cleared for export as well as import in the country of destination, on the arriving means of transport ready for unloading at the named place. The seller bears all costs and risks involved in transporting the goods to the place of destination.
TERMS FOR TRANSPORT BY SEA
The following rules may only be used in the case of transport by sea or inland waterways.
FAS - Free Alongside Ship
"Free Alongside Ship": the seller delivers by placing the goods, cleared for export, alongside the ship (e.g. on a quay or on a barge) designated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship and the buyer bears all costs from that moment onwards. The buyer is obliged to clear the goods for import in the country of destination, as well as to pay any import duties or carry out any customs formalities upon import.
FOB - Free On Board
"Free on Board": the seller delivers by placing the goods, cleared for export, on board the ship designated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are on board the ship and the buyer bears all costs from that moment onwards. The buyer is obliged to clear the goods for import in the country of destination, as well as to pay any import duties or carry out any customs formalities upon import.
FOB is usually used for bulk goods, while it is not recommended for containers despite its widespread use.
CFR - Cost and Freight
"Cost and Freight": the seller delivers by placing the goods, cleared for export, on board the ship or by procuring the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the ship. The buyer is obliged to clear the goods for import in the country of destination, as well as to pay any import duties or carry out any customs formalities upon import.
CIF - Cost, Insurance and Freight
"Cost, Insurance and Freight": the seller delivers by placing the goods, cleared for export, on board the ship. The risk of loss of or damage to the goods passes when the goods are on board the ship. The buyer has the obligation to clear the goods for import in the country of destination, as well as to pay any import duties or carry out any customs formalities upon import.
CIF requires the seller to provide minimum insurance cover against the risk of loss of or damage to the goods, although the parties are free to agree on a higher level of cover.
Do Incoterms® rules have variants?
Is it possible to use variants?
Being rules of a contractual nature, seller and buyer may modify an Incoterms® rule to suit their particular needs. Incoterms® 2020 rules do not prohibit such modifications; however, they should be carefully considered and, in order to avoid misunderstandings, the parties should clearly specify in the contract what they mean by such modifications.
Bibliographic and web references
Sitography
ICC - INTERNATIONAL CHAMBER OF COMMERCE
ICC Italy
Bibliography
Incoterms® 2020 by the International Chamber of Commerce ITA-ENG Edition
Publication ICC Italy 723 EI ©2019 International Chamber of Commerce (ICC)
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