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Contents 1 History and purpose of the rules... 1 2 Use of the Incoterms rules... 3 3 The logic of the rules... 5 3.1 All transport modes or Sea & inland waterway only... 5 3.2 Who pays for main transport... 8 3.3 Where does risk transfer before or after main transport?... 9 4 How is an Incoterms rule chosen?... 10 5 The rules in detail... 11 5.1 Ex Works EXW... 11 5.2 Free Carrier FCA... 13 5.3 Carriage Paid To CPT... 15 5.4 Carriage & Insurance Paid To CIP... 17 5.5 The arrival rules DAT, DAP, DDP general considerations... 19 5.6 Delivered At Terminal DAT... 22 5.7 Delivered At Place DAP... 24 5.8 Delivered Duty Paid DDP... 26 5.9 Free Alongside Ship FAS... 28 5.10 Free On Board FOB... 29 5.11 Cost & Freight CFR... 31 5.12 Cost Insurance & Freight CIF... 33 5.13 Qualifications of an Incoterms rule.... 35 6 The US perspective... 36 6.1 Incoterms rules vs the Uniform Commercial Code... 36 6.2 Ex Works, EAR and routed transactions... 37 Appendix A: Letters of credit and collections... 38 I. What are letters of credit and collections?... 38 II. How the Incoterms rules work with letters of credit... 40 III. Practical steps with the F rules... 41 IV. Letters of credit in practice - things to watch for... 42 V. Checklist for the transport document... 45 Appendix B: Freight insurance and the rules... 46
Incoterms 2010: A practical guide p. 1 1 History and purpose of the rules The global economy and modern logistical networks give both importer and exporters unprecedented opportunities for doing business with counterparties in other parts of the world. However when trading partners use different languages, legal systems and practices for the movement of goods, it is vital to avoid misunderstandings and to achieve precision as to how transactions are to be conducted. The ICC created the first edition of the Incoterms rules back in 1936. It immediately gained widespread acceptance in the international business community, and has been revised from time to time to reflect changes in trading and transport practices. The most recent revision is Incoterms 2010, which replaced the previous edition, Incoterms 2000. Incoterms 2010 consists of eleven packages of provision, designed to suit typical requirements of international business. Each of these Incoterms rules is identified by a name and by three-letter abbreviation for example: CIP Carriage and Insurance Paid to By agreeing on the use of one of the eleven Incoterms rules and incorporating it into their commercial agreement, buyer and seller can quickly and efficiently achieve precision and clarity on a wide range of issues, including: Transport who will arrange and pay for transport, and to what destination? Loading and unloading of goods Responsibility for export and import procedures and payment of applicable duty and taxes Where during the journey responsibility for the goods passes from the seller to the buyer important in the event of loss or damage The details of the rules are set out in the ICC publication no. 715 Incoterms 2010: ICC rules for the use of domestic and international trade terms. This is available from the ICC Bookstore. http://store.iccwbo.org/ It is available in various languages, and in both conventional print and digital formats. This publication is essential reading for those responsible for the development of an Incoterms policy, and for negotiating agreements with trading partners and service providers such as carriers and freight forwarders.
Incoterms 2010: A practical guide p. 2 NOTE: The selected Incoterms rule will be part of the commercial agreement between the buyer and seller. It will not be part of the agreement between either party and service providers such as carriers and freight forwarders. The party who arranges carriage should ensure that the terms and conditions of the carriage contract align with the selected Incoterms rule.
Powered by TCPDF (www.tcpdf.org) Incoterms 2010: A practical guide p. 3 2 Use of the Incoterms rules The agreed Incoterms rule should be included in the commercial agreement in a form such as this: CIP Hong Kong Terminal 4 Incoterms 2010 Note these three elements: The three-letter abbreviation in this case CIP, which stands for Carriage and Insurance Paid A place, Hong Kong Terminal 4. This is the destination to which the seller has contracted to transport the goods. This should be defined as precisely as possible, as many transport hubs are very large. This place will have a defined meaning within each of the rules. For some rules but not all it will be the point where risk transfers from seller to buyer. (However as you will see later, for the CIP Incoterms rule and other the point of risk transfer is earlier in the journey, before the main transport) The rubric Incoterms 2010 indicates the revision of the rules that should apply. This will normally be the latest revision. However trading partners with complex agreements that they do not want to revise are free to specify earlier revisions such as Incoterms 2000.