Incoterms

Incoterms are standardised set of rules devised by the International Chamber of Commerce for interpreting commonly used terms in international trade and commerce. Use of meanings fixed by Incoterms reduce ambiguity and thus potential for disputes in commercial contracts for supply of goods. The International Chamber of Commerce first devised meanings for the terms in 1936, and are updated to reflect developments in international trade. The most recent version is Incoterms 2000.

Incoterms are designed for use in the context of supply of tangible goods rather than services or intangible property, such as intellectual property rights. This is not to say that contracts for the supply of goods which comprise intellectual property rights are not suited to the meaning of terms attributed to them by Incoterms. Furthermore, Incoterms 2000:

1. contains distinct terms contemplating carriage by sea, other terms do not discriminate between the mode of transport, be it by land, sea or air.
2. is not intended for use in the context of contracts of carriage, insurance, finance.
3. do not deal with consequences for breach of contract, transfer of title to goods and limitations and/or exclusions from liability. Nor do they fix the law of the contract or jurisdiction for disputes.
4. deals with terms relating to the contract of sale, such as:
1. arrangements for delivery of goods to the purchaser;
2. clearing goods for export,
3. packing of the goods.

In order to take advantage of the increased certainty of meanings of terms used in a contract, reference must be made to the particular version of the Incoterms within the contract for sale. The terms defined by the Incoterms are grouped into separate categories as follows:

1. “E”-term, specifying terms upon which goods are made available at the seller’s premises for collection by the buyer, that is Ex works;
2. “F”-terms, whereby the seller delivers the goods to a carrier nominated by the buyer. Carriage, to the extent permitted is not paid by the buyer. The terms in this group are:
1. FCA: “Free Carrier”, where the place for delivery is named;
2. FAS: “Free alongside ship”, where the port from which shipment will take place is specified by the buyer;
3. FOB: “Free on board”; the port for shipment is nominated by the buyer.
3. “C”-terms, which require the seller to arrange for carriage of the goods to the buyer, in the absence of liability for risk to the goods after shipment. Carriage is paid by the seller to the nominated port:
1. CFR: “Cost and Freight”, to a named destination port;
2. CIF: “Cost, Insurance and Freight”, to a named port;
3. CPT: “Carriage Paid To”, a named port of destination;
4. CIP: “Carriage and Insurance Paid To” and specified destination port.
4. “D”-terms, which specify that the seller bears the costs and risk to deliver the goods to a named port or destination.
1. DAF: “Delivered At Frontier”
2. DAS: “Delivered Ex Ship”
3. DEQ: “Delivered Ex Quay”
4. DDU: “Delivered Duty Unpaid”
5. DDP: “Delivery Duty Paid”

Usage: The Incoterms 2000 were used to interpret the meaning of the words "FOB Rotterdam" in the contract for supply of mobile telephones.

Related Words: FCA; FAS; FOB; CIP contract; CFR; CIF; CPT; CIP; Ex Works; DAF; DAS; DEQ; DDU; DDP.