Partner and Head of Commercial
This International Trade Week, Forbes Solicitors will be focusing on international trade and some important issues to consider in the course of international trade or dealing with an international company, the first instalment of which involves the IncoTerms®, delivery and risk in international trade.
The IncoTerms® are a standardised set of terms which govern international trade. First published by the International Chamber of Commerce in 1936, the IncoTerms® provide a common set of rules that traders can use to regulate delivery and risk in a contract for the sale of goods. The rationale behind the IncoTerms® is to provide one set of rules to follow and in doing so, to remove any uncertainty in the terms of trade.
What are the IncoTerms®?
Put simply, the IncoTerms® Rules are a voluntary set of rules which parties to a contract may choose to incorporate into a trade contract and determine when responsibility is allocated between the buyer and the seller in respect of the transfer of risk in goods, responsibility for delivery, import/export tariffs, insurance and the loading and unloading of goods. The IncoTerms® are not legal in nature, but rather, they describe the more practical aspects of performance under a contract and as such, they are widely used in national and international business to business contracts. The use of IncoTerms® is widespread in international contracts but should always be supplemented by formal terms and conditions.
The most recent version of the IncoTerms® was published in 2020 and includes the 11 most commonly used trade terms in commercial contracts for the sale of goods, as follows:
Apply to all mode of carriage
- EXW (Ex Works) - goods are delivered when they are at the disposal of the Buyer at a named place. The full cost and risks of carriage, loading and unloading, import and export duties, rest with the Buyer.
- FCA (Free Carrier) - goods are delivered at the point that they are placed into the custody of a carrier or other person named by the Buyer at the agreed named place of delivery. The Buyer is responsible for arranging carriage of the goods, bearing the cost and risks of the same, and for paying import duties.
- CPT (Carriage Paid To) - the Seller is responsible for arranging carriage of the goods, which are delivered when they are placed into the custody of a carrier. The Seller bears all the risk until the goods are placed into the custody of the first carrier in the supply country and is responsible for any export clearance (but not import).
- CIP (Carriage and Insurance Paid To) - the same as CPT above, but the Seller is also responsible for insuring for the goods against any loss or damage during carriage.
- DAP (Delivered at Place) - the Seller arranges carriage and bears the costs and risks of bringing the goods to the named place of destination for unloading. Once the goods have arrived at the named place of destination, the Buyer assumes the risk.
- DPU (Delivered at Place and Unloaded) - much like with DAP above, the Seller arranges carriage, bearing the costs and risks in bringing the goods to the place of destination, however, the Seller is also responsible for unloading the goods.
- DDP (Delivered Duty Paid) - the Seller arranges carriage, bearing all the costs and risk of the same. The Buyer's sole responsibility is to unload the goods.
Apply to carriage by sea and inland waterway
- FAS (Free Alongside Ship) - the Seller bears costs of carriage to the port of shipment, at which point risk and costs transfer to the Buyer (including import duties).
- FOB (Free on Board) - the Seller bears the costs and risk of carriage to the port of shipment and delivery takes place when the goods are placed on board the ship, from which point, the Buyer will be responsible for the risk, costs and import duties.
- CFR (Cost and Freight) - the Seller is responsible for arranging carriage to the port of destination, along with the associated costs. However, the Buyer assumes the risk for the goods at the point that they are loaded onto the ship at the port of shipment (i.e. before carriage has taken place).
- CIF (Cost, Insurance and Freight) - the same as CFR above, but the Seller is also obligated to insure the goods until they reach the port of destination.
The IncoTerms® are therefore useful in providing some clarity in business to business transactions, particularly those which concern international trade, where language barriers, governing law and common practice may impact upon the interpretation of bespoke contractual provisions.
For more information contact John Pickervance in our Manufacturing & Engineering department
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