Incoterms (International Commercial Terms) – The set of international trade rules ICC (International Chamber of Commerce) issued – is the “common language” in global goods sale contracts.
Main purpose: To clearly define responsibilities, costs and risks between seller and buyer during the transportation of goods.
In the latest version – Incoterms 2020, Have 11 international trade terms, divided into 2 main groups:
Group applies to all modes of transport
- EXW (Ex Works – Ex Works): The seller only prepares the goods; the buyer bears all costs and risks.
- FCA (Free Carrier – Delivered to the carrier): The seller delivers the goods to the carrier nominated by the buyer.
- CPT (Carriage Paid To): The seller pays the freight, but the risk transfers upon delivery to the first carrier.
- CIP (Carriage and Insurance Paid To): Same as CPT, but seller must purchase insurance for the goods.
- DAP (Delivered At Place): The seller bears the costs and risks to the place named by the buyer (not unloaded).
- DPU (Delivered at Place Unloaded): The seller is responsible for delivering and unloading the goods at destination.
- DDP (Delivered Duty Paid): The seller bears all costs, risks and taxes until the goods reach the buyer.
Group applies to maritime and inland waterway transport
- FAS (Free Alongside Ship): The seller delivers the goods at the port, alongside the ship.
- FOB (Free On Board): Seller bears costs & risks until goods are loaded on board.
- CFR (Cost and Freight): Seller pays freight to destination port; risk transfers when goods are on board.
- CIF (Cost, Insurance and Freight – Cost + freight + insurance): Same as CFR but with additional insurance purchased by the seller.
3 CORE ELEMENTS OF INCOTERMS
- Who bears the cost?
- Who bears the risk?
- Where is the point of transfer of responsibility?
IMPORTANT NOTES WHEN USING INCOTERMS 2020
- Incoterms no regulation of ownership of goods or payment method.
- Incoterms optional but is considered international standards in import-export contracts.
- When signing a contract, it must be clearly stated. Incoterms version (For example: “FOB Cat Lai Port, Ho Chi Minh City, Vietnam – Incoterms® 2020”) to avoid disputes.
In the context of global integration, understanding Incoterms 2020 help businesses:
- Minimize risk,
- Effective cost management,
- Improve competitiveness in international markets.
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