Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by and is a registered trademark of the International Chamber of Commerce (ICC) widely used in international commercial transactions.
Incoterms are a series of three-letter acronyms related to common sales practices, and are intended primarily to clearly communicate the tasks, costs and risks associated with the transportation and delivery of goods. The Incoterms rules are accepted by governments, legal authorities and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretations of the rules in different countries.
They’re used to make sure both the buyer and the seller are clear about:
- Who will arrange for the carriage?
- Who is responsible for the cost of transporting the goods, including insurance, taxes and duties?
- Who is responsible for the goods at each step during transportation?
- Who will bear the risk for loss and damage of goods?
- To and from where the goods should be picked up and transported?
By agreeing to use an Incoterms rule, the buyer and seller achieve precision and clarity in defining their obligations and responsibilities. The rules do not attempt to cover all aspects of the commercial agreement – there are important matters such as transfer of title and how the goods are to be paid for, on which the Incoterms rules are silent.
The rules can be usefully arranged into four groups:
- Buyer responsible for all carriage – EXW
- Buyer arranges main carriage – FAS, FOB, FCA
- Seller arranges main carriage, risk passes after main carriage – DAT, DAP, DDP
- Seller arranges main carriage, but risk passes before main carriage – CFR, CIF, CPT, CIP
First published in 1936, the rules have been periodically updated. The sixth and most recent version – Incoterms 2010 was published in 2011.
Magellan has produced a handy summary of the Incoterms for you to download and print for future reference. All the current terms are described in this summary, however, EXW, FOB, CIF and CIP are the most frequently used in Australian exports. More detail on this information and how to apply it is available in published volumes, available online from the ICCA bookshop.
If you would like more detailed information on which term is most applicable for you or have a general freight forwarding or customs clearance inquiry, please get in touch with Magellan on 1300 651 888.
