Incoterms

The International Commercial Terms were first published by the Paris-based International Chamber of Commerce in 1936. The current version of the International Commercial Terms (Incoterms) came into effect on 1st January 2011.

The terms lay down recognised standard contractual provisions for trade terms. They cover the seller’s obligations concerning delivery of goods including who carries the costs and risks.

Aspects of international goods transactions which are not covered by the Incoterms include, for example, provisions on the conclusion of the contract, the sale price, payment obligations, the transfer of property, and the consequences of a breach of contract. As a result, the sales contract should expressly include provisions on these areas.

The Incoterms can be used in both national and international sales transactions. Where the Incoterms are to be used, they should be expressly included in the sales contract.

Eleven clauses are contained in the Incoterms 2010. The clauses can be grouped according to the type of transport they are suitable for regulating.

Defining delivery with precision

Choosing the right clause for your sales transaction can be important. The clause chosen must correspond with the relevant type of transport to be used. If the seller is to bear the costs of transportation, for example, this may be reflected in the price of the goods.

It is vital that the definitions used in the sale contract are as precise as possible, as the risk of damage to or loss of the goods is linked to the place where the goods are delivered.

For example, if the seller is to deliver the goods by placing them in the ‘collection bay’ on its premises (Ex Works), and they fall off the forklift truck before they are placed in the bay, the seller bears the risk of the damaged goods and, depending on what the parties have agreed in the sales contract, may either have to pay compensation or deliver new goods. For this reason, the ‘collection bay’ should be precisely defined, especially if there is more than one. In addition, it should be precisely stated when exactly delivery takes place (e.g. in this example when the goods set down in the collection bay).

More information

For more information on the international sale of goods in transactions involving German businesses, contact our team of expert German lawyers +49 (0) 221 / 951 563 0 or use our contact form.


Here is a summary of the International Commercial Terms:

 

A. Terms suitable for all transport modes

Acronym

Name

Explanation

Notes

EXW

Ex Works
+ (named place)

The goods are delivered when they are placed at the buyer’s disposal on the seller’s premises or other named place (e.g. factory, warehouse).

The seller carries the costs of delivery.The seller is not under any obligation to load the goods onto any vehicle which may come to collect them.

Also, the seller need not worry about clearing the goods for export (if applicable).

As the seller carries the cost of delivery and bears the risk of damage before delivery, it is important that the parties define as precisely as possible the specific area inside the relevant premises where delivery takes place.

EXW is most suitable for national sale of goods transactions.

FCA

Free Carrier
+ (named place)

The seller delivers the goods to the carrier or another person nominated by the buyer.

The location is the seller’s premises or another named place.

The seller must clear the goods for export, and is responsible for packaging and for examining the goods.

The buyer is responsible for the main transport, import and transit formalities.

As the seller carries the cost of delivery and bears the risk of damage before delivery, it is important that the parties define as precisely as possible the specific area inside the relevant premises where delivery takes place.

FCA is particularly well suited to container transport.

CPT

Carriage Paid To
+ (named destination)

The seller delivers the goods to the carrier or another person named by the seller, and where applicable to a named place.

The seller bears the cost of transport to the named destination and must arrange the contract of carriage.

The seller must clear the goods for export, and is responsible for packaging and for examining the goods.The buyer is responsible for the import formalities.

Precise location definitions are essential.

The risk and costs are determined with reference to two different locations.

The risk of loss or damage to the goods transfers to the buyer at the point of delivery (i.e. when they are handed to the carrier)The costs of transport are determined by reference to the destination.

CIP

Carriage and Insurance Paid To
+ (named destination)

The seller delivers the goods to the carrier or another person named by the seller, and where applicable to a named place.

The seller bears the cost of transport to the named destination and must arrange the contract of carriage.

The seller is also responsible for arranging and paying for a contract of insurance to cover the buyer’s risk of goods being lost or damaged during transport.

The seller sends the insurance policy or some other confirmation document to the buyer.

The seller must clear the goods for export, and is responsible for packaging and for examining the goods.

The buyer is responsible for the import formalities.

The buyer should be aware that the seller is only under an obligation to conclude an insurance contract containing minimum cover.

If the buyer requires additional protection, this should be agreed expressly with the seller, or the buyer should personally make the extra insurance arrangements.

DAT

Delivered at Terminal
+ (named terminal at port or destination)

The seller’s delivery obligations are fulfilled when the goods are placed at the buyer’s disposal at the named terminal or place of destination having been unloaded from the carrier.

The seller carries the risk of transportation to and unloading at the terminal.

The seller must clear the goods for export, but is not required to clear them for import.

The word ‘terminal’ can be any place, whether covered or not. Examples include: a quay, warehouse, container depot or a cargo terminal.

Delivered at Terminal is particularly well suited to transactions which involve more than one mode of transport.

DAP

Delivered at Place

The seller delivers the goods by placing them at the buyer’s disposal ready for unloading from the carrier at a named place.

The seller carries the risk of transportation to the named place.

The seller must clear the goods for export, but is not required to clear them for import.

Delivered at Place is particularly well suited to transactions which involve more than one mode of transport.

DDP

Delivered Duty Paid
+ (named destination)

The seller delivers the goods by clearing them for export and import and placing them at the disposal of the buyer at the named destination ready for unloading from the carrier.

The seller bears all the costs and risk of transportation and import, including duty, tax and other payments.

The seller must complete all customs arrangements, including obtaining all import, export and transit permits and documentation.

The buyer is required to accept delivery of the goods and is responsible for any storage or further transportation.

Delivered Duty Paid represents the maximum obligations a seller can enter into.

 

B. Terms suitable for shipment and inland waterway transport

Acronym

Name

Explanation

Notes

FAS

Free Alongside Ship
+ (named port of shipment)

The seller delivers the goods by placing them alongside a ship nominated by the buyer (i.e. on a quay or barge) at the named port of shipment.

The risk of loss or damage during transportation passes to the buyer once the goods are placed alongside the nominated ship. The buyer bears all costs thereafter.The seller must clear the goods for export, and is responsible for packaging the goods. The seller not required to clear the goods for import.

The seller can also fulfil its delivery obligations by procuring goods which are already standing alongside a ship ready for shipment.

Such flexibility is useful in string sale transactions, such as transactions concerning raw materials.

FOB

Free On Board
+ named port of shipment

The goods are delivered when they are placed on board a vessel nominated by the buyer at the named port of shipment.

The risk of loss or damage passes to the buyer when the goods are on board the ship. The buyer bears all costs once the goods are delivered.

If applicable, the seller must clear the goods for export, and is responsible for packaging the goods.

The seller can also procure goods which have already been placed on board a ship, i.e. already delivered.

FOB can be unsuitable where good must be handed to carrier before they are loaded.

CFR

Cost and Freight
+ named port of destination

The seller delivers the goods when they are placed on board a ship at the port of departure.

The seller must contract for and pay the costs of transportation to the named port of destination.

Risk passes to the buyer once the goods have been place on board the vessel at the port of departure.

If applicable, the seller must clear the goods for export, and is responsible for packaging the goods.

The seller can also procure goods which have already been placed on board a ship, i.e. already delivered.

Risk and the cost of transportation pass at two different points.

Risk passes once the goods have been placed on board the ship at the port of departure.

The seller bears the costs of transportation until the port of destination.

CIF

Cost, Insurance and Freight
+ named port of destination

The seller delivers the goods when they are placed on board a ship at the port of departure.

The seller bears the costs of transportation to the named port of destination.

Risk passes to the buyer once the goods have been place on board the vessel at the port of departure. But, the seller has to contract and pay for insurance.

The seller sends the insurance policy or some other confirmation document to the buyer.

If applicable, the seller must clear the goods for export, and is responsible for packaging the goods.

The seller can also procure goods which have already been placed on board a ship, i.e. already delivered.

The buyer should be aware that the seller is only under an obligation to conclude an insurance contract containing minimum cover.

If the buyer requires additional protection, this should be agreed expressly with the seller, or the buyer should personally make the extra insurance arrangements.

 

Ship’s railing

It should be noted that in FOB, CFR and CIF transactions the goods are delivered once they are placed on board a ship. This means that the earlier problem of defining when the goods are over a ship’s rail is no longer relevant.

More information

For more information on the international sale of goods in transactions involving German businesses, contact our expert team on +49 (0) 221 / 951 563 0 or use our contact form.


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Christian Solmecke is a partner at the law firm WILDE BEUGER SOLMECKE. He is the author of numerous legal publications in the area of internet and IT law. He is also an associate lecturer for social media law at the Cologne University of Applied Sciences.

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