What are the 11 International Freight Incoterms?

11 incoterms are a set of terms used in the global shipping and trade industry. These terms are published by the International Chamber of Commerce (ICC). The terms specify the responsibilities and liabilities of the sellers and buyers in international trade scenarios.

They also outline other aspects of the trade, such as delivery point, cost, risk transfer and so on. The incoterms provide answers to various questions that may arise in the minds of the parties involved in international shipping.

There are 11 incoterms and the ICC periodically updates them.

-Commercial Incoterms: Categories

The incoterms can be divided into two categories, which allows us to understand their application in international trade.

The first category of incoterms is applicable to any mode of transport. This category includes 7 terms. It includes the following:

• EXW (Ex-Works)

• FCA (Free Carrier)

• CPT (Carriage Paid To)

• DAP (Delivered At Place)

• DPU (Delivered At Place and Unloaded)

• CIP (Carriage and Insurance Paid To)

• DDP ( Delivered Duty Paid)

• The second category of incoterms is applicable to sea and inland waterway transport. There are 4 terms in this category, which are as follows:

• FAS (Free Alongside Ship)

• FOB (Free On Board)

• CFR (Cost and Freight)

• CIF (Cost Insurance and Freight)

Each of the commercial incoterms mentioned above implies a distinct obligation and right; it specifies the point at which the ownership, risk and costs transfer from the seller to the buyer. Thus, it is crucial to understand each term in detail.

-1. EXW

The sellers have the least liability under EXW. As per this incoterm, the seller is required to make the goods available to the buyer at his premises. After that, the buyer takes up the ownership, liability, risk and cost of the goods.

-2. Free Carrier

The seller is required to deliver the goods to the carrier selected by the buyer. After this point, all the costs are borne by the buyer. FCA offers flexibility to both the parties.

-3. CPT (Carrier Paid To)

As per this incoterm, the seller shall deliver the goods to a carrier he chooses. The place of delivery is chosen by the seller and he covers the cost of transportation to the specified location. However, the buyer bears the responsibility of customs clearance, import duty and so on when the goods are delivered to the first carrier.

-4. DAP (Delivered At Place)

DAP means the seller is responsible for the goods up until the point of unloading at the destination specified by the buyer. The seller bears the cost of transportation till this point. After this, the cost of unloading is the buyer’s responsibility.

-5. DPU (Delivered At Place And Unloaded)

Under DPU, the seller not only transports the goods to the buyer’s destination but also unloads them. Thus, the risk and ownership are transferred to the buyer after the unloading is completed.

-6. CIP (Carriage and Insurance Paid To)

Similar to the CPT, the seller pays for the carriage under CIP. In addition to this, he also pays for the cargo insurance up to the said destination. However, it must be noted that the risk and responsibility are transferred to the buyer when the goods reach the first carrier.

-7. DDP (Delivered Duty Paid)

This incoterm places the maximum responsibility on the supplier as they are required to handle all the aspects of goods, including export and import clearance, cost of delivery, etc. The buyer assumes responsibility when the goods reach the destination, ready to be unloaded.

**-8. FAS (Free Alongside Ship)

The supplier undertakes to deliver the goods alongside the vessel chosen by the buyer. All the transportation and delivery costs are paid by the buyer.

-9. FOB (Free On Board)

The seller is responsible for the goods until he delivers them on board the vessel as agreed. The costs of transportation and delivery are borne by the buyer. There is FOB shipping and FOB destination.

-10. CFR (Cost and Freight)

Under CFR, the seller delivers the goods on board the ship at the agreed port. He pays for the transportation up til the port of destination. Charges such as the customs clearance and delivery are paid by the buyer.

-11. CIF (Cost, Insurance and Freight)

When the parties agree to CIF, the seller is liable to deliver the goods on board the vessel at the agreed port. He pays for the transportation and insurance till the point of destination. Thereafter, the other costs, such as customs clearance and delivery to the final destination, must be paid by the buyer as he assumes the ownership of the goods.

Given the complex nature of the shipping and trade industry, it is pivotal to have a standardised set of rules to guide the buyers and sellers. In this scenario, the importance of the 11 incoterms cannot be emphasised enough. Here are some key points that establish its importance:**

-Simplifies the Trade: Incoterms are the rules that simplify trading and shipping transactions. The rules state clear instructions, enabling both parties to navigate the transaction smoothly. It allows the buyer and seller to know their rights and responsibilities and act accordingly.

-Saves Time and Money: Since the Incoterms clearly state the rights and obligations, it saves time and money which would otherwise be spent on hiring lawyers to draft the rules and regulations for the transactions.

-Easy To Understand: The Incoterms are easy to understand as they specify the rules in a simple language. It clearly mentions the point of ownership transfer, risk transfer and expense liability.

-Enables Clear Communication: Commercial incoterms enable the parties to the contract to have clear communication about the terms and conditions. It helps them to eliminate any misunderstandings and do their part efficiently.

-No Inconsistencies: The presence of incoterm eliminates inconsistencies and brings clarity to the definition of specific terms. It ensures that both parties understand the terms of contract in the same manner.

-Choosing the Right Incoterm

Here are the factors that you must consider while choosing an incoterm for your contract:**

• Consider your logistic capability and knowledge. If you have a good understanding of domestic and international logistics, you can choose an incoterm that gives you more control over the logistics.

• Based on your risk tolerance capacity, you may choose incoterms with high or low risks. Some incoterms place more risk on the buyer, whereas others place more risk on the seller.

• You may also consider your cost-bearing capacity while choosing an incoterm.

Incoterms for international shipping are the standardised rules that provide a concrete framework for the buyers and sellers. They play a pivotal role in preventing misunderstandings and outlining each party’s rights and obligations. Thus, every buyer and seller must be aware of them.

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-Is it mandatory to follow incoterms?

The 11 incoterms are not mandated by the government or under any law. However, by following them, buyers and sellers can agree to the same conditions and avoid any misunderstandings.

-Can incoterms be used for domestic shipping?

Yes, incoterms in domestic shipping are useful for transactions at the domestic level. If both the buyer and seller agree to the incoterms, they can include it in the contract so the transaction can be done smoothly.

-Can one use the Incoterms 2010?

The Incoterm 2020 is the latest version of the regulations. Though one can use the 2010 version, it is recommended to use the 2020 version as it contains revisions and clarifications as per the current industry trends.