Incoterms (the acronym for International Commercial Terms) are the terms set by the International Chamber of Commerce in Paris in 1936 to regulate international trade. Since then, they have been modified several times in order to adapt to the commercial context of the moment.

Incoterms, which were revised in 2010 and whose changes have come into force from as 2011, are rules used globally to clarify the allocation of costs between seller and buyer, and above all, to define what is the exact point at which risks of loss, damage, etc. .. are transferred from seller to buyer.

Innovations of the most recent modification in 2010

The most recent modification of Incoterms has eliminated the following four terms:

DDU (relative to those deliveries with unpaid duties), DEQ (relative to those deliveries made on the quay), DES (relative to those deliveries made aboard ship), DAF (relative to those deliveries made at the border).

On the other hand  two new Incoterms have been added named DAP and DAT.

By way of these two new Incoterms, delivery at a mentioned destination is agreed, whereby the seller assumes all costs and risks related to the transport to the agreed place of delivery.

Following this review, Incoterms have been divided into two groups, one named multimodal (or combined transport) and the other being exclusively marine.

a) Rules for any mode of transport or multimodal (combined) transport:

For those deliveries in which different means of transport are used, or sea transport is not used exclusively, the following Incoterms (the acronym for International Commercial Terms) may apply:

• EXW – Factory delivery, the seller makes the goods available to the buyer at their facilities.

• FCA – The seller delivers at an agreed location, bearing the costs up to that point. The risk ends with delivery to the carrier.

• CPT – The seller delivers in the country of destination, but the risk ends with delivery to the carrier.

• CIP – The seller bears all costs and insurance, but the risk ends with delivery to the carrier in the country of origin.

• DAT – The seller is responsible for all costs, including the main transport and insurance (though it is not obligatory), until the goodsare placed in the agreed terminal, whether marine or terrestrial, and assumes the risks up until that moment.

• DAP – The seller is responsible for all costs, including the main transport and insurance (which is not obligatory), but not the costs associated with importing, until the goods are made available to the buyer in a vehicle ready to be unloaded, assuming the risks up until that time.

• DDP – Seller pays all expenses until the goods leave the agreed point in the country of destination. The buyer does not carry out any type of proceedure. The customs importation costs are borne by the seller.

The revision of Incoterms is intended to promote the use of the Incoterms FCA, CPT and CIP in order to reduce the retail seller’s risk, since the risk is transmitted with the delivery to the first carrier, as well as reducing cost, in an attempt to avoid duplication.

With the entry into force of the two new Incoterms, DAT and DAP, delivery occurs at a determined destination, and the seller bears all costs and risks associated with transporting the goods to the place made available.

b) Rules for shipping or delivery exclusively through waterways on land:

For those deliveries in which only use maritime transports):

• FAS – The goods are delivered in the agreed quay, that is to say alongside the ship. The cost is borne by the seller.

• FOB – The seller delivers the goods aboard the vessel and the transport cost is assumed by the buyer.

• CFR – The seller bears all costs to the agreed port of destination, but the risks are for the buyer since the commodities are loaded at the port of origin.

• CIF – the seller is responsible for all costs, including the main transport and insurance, although the beneficiary is the buyer, until the goods arrive at the destination port. The risk is transferred when the goods are loaded.

As mentioned, Incoterms are an important means to simplify international business, setting uniform and standardized clauses for their implementation, but do not provide legal conditions or references to applicable law or jurisdiction to resolve disputes between the parties.

Like any other contractual clause Incoterms must be agreed between the parties, therefore it is important to consider carefully which ones best suit the way we operate our company in order to save cost and reduce risk.

For more information, please contact:
info@vila.es/en