The international trade requires clear agreements as to where the seller’s responsibility ends and where the buyer’s responsibility begins. These agreements are laid down in standardised international agreements of the International Chamber of Commerce (ICC).
Incoterms are accurate descriptions of the rights and obligations of the buyer and seller in the international delivery of goods with regard to transport, insurance, licenses and customs formalities. In these agreements, the obligations of the buyer and seller are formalised:
- Who arranges the transport and to what location?
- Who takes care of transport insurance, permits, authorisations, documents and other formalities?
- When do the costs and risks pass from seller to buyer?
Incoterms for specific types of transport
The International Chamber of Commerce (ICC) has established eleven ICC Incoterms® 2010, four of which specifically relate to container transport by sea. The other seven are applicable to all types of transport (multi-modal).
Incoterms for sea freight:
- FAS: free alongside ship
- FOB: free on board
- CFR: cost and freight
- CIF: cost insurance and freight
Incoterms for multi-modal transport
- EXW: ex works
- FCA: free carrier
- CPT: carriage paid to
- CIP: carriage and insurance paid to
- DAT: delivered at terminal
- DAP: delivered at place
- DDP: delivered duty paid
How do I deal with Incoterms?
It is highly recommendable to include the specific ICC Incoterms® 2010 you have agreed on in the sales contract or the General Terms and Conditions. We also recommend you to make an explicit reference to the version of the ICC Incoterm®-rule 2010 agreed upon, for instance: 'ex works Utrecht Incoterms 2010'.
As an exporter, always draw up the agreed terms of delivery in a language that your buyer can understand, preferably in his or her own language. By doing so, any problems with respect to the validity can be avoided. Also make sure that the importer or business partner you are dealing with has actually received the terms before concluding the contract.
Watch the video below to learn more about the ICC Incoterms® 2010: