Incoterms 2000

General remarks

Before considering transporting goods internationally, you must answer this important question: at what moment are the risks and costs transferred to the buyer?

In 1936, for the first time, the International Chamber of Commerce (ICC) in Paris published under the name of 'Incoterms 1936' (INternational COmmercial TERMS), a series of international rules to answer this question and the interpretation of the commercial terms most used in foreign trade (the latest revision of these rules dates from 2000).

Thus, by referring in their contracts to one of the ICC's Incoterms, the buyer and the seller reduce the uncertainty inherent in all international transactions: different commercial practices and interpretations from one country to another. They specify their respective responsibilities and obligations for the delivery of goods and the documentary obligations of the seller.

Thus, the INCOTERMS, although optional, are standardized and recognized clauses, which make it possible to avoid disputes by apportioning clearly between the buyer and the seller:

• the costs,
• the risks.

Moreover, they dissociate the question of the transfer of risks from that of the transfer of ownership, the latter remaining governed by the law governing the contract .

Concretely, in an international sales contract, the Incoterms will clarify the following points:

1. Situating the critical point of transfer of the risks from the seller to the buyer during the process of carriage of the goods (risks of loss, deterioration, theft of the goods) thus allowing the one who bears the risks to make arrangements and especially in terms of insurance;
2. Indicating whether the seller or the buyer has to take out the transport contract,
3. Apportioning between the two parties the administrative and logistic costs at the various stages of the process,  
4. Specifying who is responsible for the packaging, the branding, the handling, loading and unloading operations of the goods, or the loading or unloading (stripping) of containers as well as inspection operations.
5. Setting the respective obligations for carrying out export and/or import procedures, paying duties and import taxes as well as providing documents. There are 13 Incoterms retained by the ICC, (original English codification in 3 letters, e.g.: FOB) plus a precise location e.g. : « FOB Le Havre ».

Comprehensive list of Incoterms:

Classification by increasing degree of obligations for the seller:

Equivalence table, French source: JO (Official Journal) of August 14 1998, international conditions of sale

See the analysis of each incoterm

Giving specific geographical details is recommended to avoid serious misunderstandings between buyer and seller.
EXAMPLE : « EX Works » : does it mean a factory in Tunisia or a factory established abroad by a Tunisian company?

Classification of the incoterms broken down by means of transport and type of sale, at departure or arrival:

Synoptic table of break down of costs by incoterm 2000 :

EXW   S B B B B B B B B B B (1) A   FAS   S S S S B B B B B B B (1) SE   FCA   S S S S B B B B B B B (1) A   FOB   S S S S S B B B B B B (1)> SE   CFR   S S S S S S B B B B B (1) SE   CPT   S S S S S S B B B B B (1) A   CIF   S S S S S S S B B B B (1) SE   CIP   S S S S S S S B B B B (1) A   DAF   S S S S S S/ B* S/ B* B B B B (2) L   DES   S S S S S S S B B B B (2) SE   DEQ   S S S S S S S S B B B (2) SE   DDU   S S S S S S S S B S B (2) A   DDP   S S S S S S S S S S B (2) A

S: payable by the seller
B: payable by the buyer
(1): Sale at departure
(2): Sale at destination

* S/B : Sharing of costs and risks between buyer and seller, to be specified in the contract, taking into account the geographical location.

Summary:

Synoptic table:

Analysis of the different Incoterms

The incoterm " EXW " EXW= EX WORKS …(named place)

Type of sale = at departure

• Seller: the only responsibility of the seller is to put the goods in packaging adapted to the transport, at the disposal of the buyer on his premises (in general, the price includes loading on pallets).

• Buyer: the buyer bears all the costs and risks inherent in the transport, from the factory to the destination.
  

Variation: « EXW Loaded » or in French < à l’usine, ENU chargé sur »

The 2000 revision of the incoterms introduced the concept of « EXW loaded » which recognizes a freqently used practice: the seller takes care of and is

responsible for the loading of the goods on the buyer's vehicle.

The group of Incoterms " F " = FREE

FCA= FREE CARRIER …(named place)

Type of sale: at departure

• Seller: If the delivery is carried out on the seller's premises, it is the seller who loads the appropriately packaged goods on the vehicle provided by the buyer, (specify « FCA seller's premises »). The seller takes care of the export Customs clearance.

• Buyer: The buyer chooses the means of transport and the carrier with whom he concludes the transport contract and pays for the main transport. The transfer of costs and risks takes place at the time when the carrier takes over the goods. The parties have to agree on the place where the goods are handed over (carrier's terminal or seller's premises).

Variation: "FCA seller's premises"

This incoterm became official with the 2000 revision of the incoterms: it is up to the seller then to load the goods.

Remarks:

Forget the FOB Airport as this term has not existed for a very long time (it disappeared more than 20 years ago, with the incoterms 1980) and use « FCA Airport »
Even more than with the other incoterms, in FCA you should carefully specify the «named place». FCA (Le Havre) is not enough if the exporter is located in Le Havre. Is it FCA (Le Havre factory) or FCA (forwarding agent X's bulking warehouse Le Havre) or even FCA (quay N° X in the port of Le Havre) ?
If the delivery is made at another place than the seller's premises, for example, handover at a transport terminal - road, train, air, sea - the seller will transport the goods as far as this terminal, but will not be responsible for unloading the vehicle. The unloading will be the responsibility of the person who takes delivery of the goods at this transport terminal.
Prefer FCA to FOB, if the transport is by container or roll-on roll-off vessel.

FAS = FREE ALONG SIDE SHIP …(named port of shipment)

Type of sale: at departure

Seller: The obligations of the seller have been fulfilled when the goods are placed Customs cleared alongside the vessel at the quay or on the lighters at the named port of shipment.

Buyer: From this moment on, the buyer bears all the costs and risks of loss or damage as soon as the goods have been delivered alongside ship, especially if the vessel is late or if the call is cancelled. The buyer designates the carrier, concludes the transport contract and pays for the freight.

NB : The seller only delivers FAS if he delivers alongside the ship while the ship is there. It is an
obligation of place and time (From Marseille to Antwerp, where each company offers at least one sailing per week, delivering more than eight days before the date of the vessel chosen by the buyer is too early).

FOB = FREE ON BOARD ...(named port of shipment)

Type of sale: at departure

• Seller: The goods are placed on board the vessel by the seller. The export procedures are the seller's responsibility.
• Buyer: The buyer designates the vessel and pays for the freight. The transfer of costs and risks takes place at the moment when the goods pass over the ship's rail.

The transfer of costs poses the problem of the use of "liner terms" (in the shipping transport contract). In practice, the seller has to pay the boarding costs in accordance with the practices of the port inasmuch as they are not included in the shipping freight.

Remarks:

• The notion of ship's rail endures. Now, this notion pertains to "conventional" vessels only and in no way to modern container ships or roll-on roll-off ships.
• There is an interval between the place of transfer of costs and risks (vertically over the rail of the vessel at the port of shipment) and the place of delivery (on board the vessel, concretely at the moment of releasing the hoist load which has just gone down into the hold).
• For information: « ARRANGING FOB » :
  is the terminology used by forwarding agents to indicate that the operations prior to the putting on board have been carried out including, if necessary, the export clearance procedures. All these operations mean a certain cost, to be paid by the seller, sometimes called «cost of arranging FOB».

Variation: « FOB STOWED » and/or « FOB STOWED and TRIMMED 

The seller takes responsibility for all of the costs borne by the goods at the port of shipment. But specify in the contract where the transfer of risks takes place!

The group of Incoterms " C " = COST AND CARRIAGE

CFR = COST AND FREIGHT …(named port of destination)

Type of sale: at departure

• Seller: He chooses the carrier, concludes and bears the costs, paying for the freight as far as the named port of destination, unloading
  not included. Loading the Customs cleared goods on the vessel is his responsibility as well as the shipping procedures. On the other hand, the transfer of risks is the same as in FOB.

• Buyer: Bears the transport risk, when the goods have been delivered on board the vessel at the port of shipment; he receives them from the carrier and takes delivery of the goods at the named port of destination.

NB : Prefer CPT to CFR when the place of delivery is not when passing over the ship's rail (the case of containers and shipments by roll-on roll-off vessels).

CIF = COST, INSURANCE AND FREIGHT …(named port of destination)

Type of sale: at departure

• Seller: This term is identical to CFR with the additional obligation for the seller to provide marine insurance against the risk of loss or damage to the goods. The seller pays the insurance premium.*
• Buyer: Bears the transport risk, when the goods have been delivered on board the vessel at the port of shipment. He receives and takes delivery of the goods from the carrier at the named port of destination.

This incoterm is frequently used in practice. Buyers like this incoterm, as they free themselves from the logistic procedures.

* The insurance must comply with the minimum guarantee of the cargo clauses of the Institute of London Underwriters or of any other series of similar clauses. It must cover at least the price provided for in the contract increased by 10 % and must
be drawn up in the currency of the contract. It is an FPA insurance (free of particular average) on 110% of the value. It is possible to increase by up to 20 % without justification. A higher increase may be accepted by the insurers if it is justified.
This increase in value is to cover the costs resulting from the average (costs of putting together the dossier and the follow up, correspondance, etc.) and the financial losses (interest) between the time of the loss and compensation by the insurers. The seller pays the insurance premium.

NB : Prefer CIP to CIF when the place of delivery is not when passing over the ship's rail (in the case of containers and shipments by roll-on roll-off vessels).

CPT = CARRIAGE PAID TO …(named place of destination)

Type of sale: at departure

Seller: The seller controls the logistic chain. After having taken care of export Customs clearance, he chooses the carriers and pays the costs as far as the named place.

Buyer: The risks of damage or loss are borne by the buyer from the moment when the goods are handed over to the
first carrier. Then, the buyer takes responsibility for import Customs clearance and the
costs of unloading.

NB : It is important to clarify precisely the notion of unloading costs within the scope of the transport contract. The buyer must usually bear the
costs of unloading except if they are included in the price of the transport. In this case, they are the seller's responsibility. The seller must therefore clarify the question precisely with his buyer to avoid finding himself in a situation where, the consignee refusing to pay, the carrier takes action against his principal (the seller) and demands that he pays the unloading costs and possible immobilization costs for the vehicle while waiting for the problem to be solved.

CIP = CARRIAGE AND INSURANCE PAID TO …(named place of destination)

Type of sale: at departure

Seller: CIP is identical to CPT, but the seller must also provide transport insurance. The seller concludes the transport contract, pays for the freight and the insurance premium.

Buyer: The risks of damage or loss are borne by the buyer from the moment when the goods are handed over to the
first carrier. Then the buyer takes responsibility for import Customs clearance and the
costs of unloading.

NB 
Prefer CIP to CIF when the place of delivery is not when passing over the ship's rail (in the case of containers and shipments by roll-on roll-off vessels).
The comments on unloading at the arrival point are identical to those mentioned in the Incoterm CPT.

The group of incoterms " D " = DELIVERED

DAF = DELIVERED at FRONTIER…(named place)

Type of sale: at destination

• Seller: The seller pays the costs and bears the risks as far as the frontier which must be specified. He takes responsibility for the export Customs procedures.

• Buyer: Takes delivery at the named frontier point. He takes responsibility for the import Customs procedures.

The two parties must agree on responsibility for insurance over the whole journey. According to the 2000 revision, if the goods are transferred (moved from one vehicle to another), the costs and risks concerning the unloading and the reloading are borne by the buyer, unless expressly stated otherwise.

The delivery takes place at the frontier, at the named place, but before the Customs frontier of the adjacent country,
the goods not being unloaded. Most of the time, it is the same vehicle which transports the goods as far as their final destination. In this case, there is no transfer of goods at the frontier. It is the reason why the term DAF has made provision for the seller to be able, on the buyer's request and at his expense and risk, to conclude a transport contract for the part beyond a frontier point and as far as the final destination chosen by the buyer.

NB :
Prefer DES or DEQ to DAF if the frontier is not a land frontier, but a port for example.
It is advisable to specify clearly the place on the frontier. For example: a French exporter sells to a Pole "free German-Polish frontier". Where is the exact transfer point?
Incoterm to be avoided in trade within the EU.

DES = DELIVERED EX SHIP …(named port of destination)

Type of sale: at destination

• Seller: The seller chooses the shipping company, concludes, pays for the freight. He bears the costs and risks of the transport. The transfer of costs and risks takes place
  on board the vessel at the unloading point in the arrival port
  before unloading.

• Buyer: Takes delivery of the goods on board the vessel in the port of destination and pays the unloading costs.
  This Incoterm – rarely used – becomes useful when the risks have to be transferred in the landing port. For example, and this is the most frequent case, when the buyer of a good cannot be determined in advance, or when the arrival port cannot be precisely determined. This is the case of sales of commodities (coffee, ores, steel) which are the subject of several purchases/sales, and therefore sometimes of re-routing of vessels during transport.
  The seller's placing the goods at the buyer's disposal covers a physical state (goods in a vessel in the port) but also implies a legal situation: that the buyer is in possession of the document which allows him to take delivery.

DEQ = DELIVERED EX QUAY …(named port of destination)

Type of sale: at destination

• Seller: The seller places the goods at the buyer's disposal, export Customs cleared, on the quay at the named port.

• Buyer: Import Customs clearance is the buyer's responsibility now.

The parties must agree on a port of destination but also on a quay. If a quay is not named or determined by custom, the seller can choose the quay that suits him best.

NB :
People in International Trade rarely use the Incoterm DEQ.
It should be reserved:

a) for business treated as "weight and quality recognized on landing", with, most often, continuous weighing and contradictory taking of samples by an independent expert (or two experts, one for each party) to determine the weight and quality of the delivered goods, and consequently, their price.
and/or
b) when the unloading at the quay is carried out by the vessel, when the handling of unloading is an intrinsic part of the shipping freight. This is the case of cement carriers which unload their cargo into silos using forced air, and bulk liquid carriers (wine, fruit juice, etc.) pumping into tanks on shore.

As concerns the quay: Suppose that the named quay is not available and the carrier vessel is put at another quay by the port authorities. The buyer had planned to load the goods onto freight cars to transport them to the interior of the country. The chosen quay has rail access, the quay imposed does not.

Who is going to bear the costs of transferring the goods from the quay imposed to the chosen quay? The seller, of course, and this situation can turn out to be extremely costly for him. Therefore one should think carefully about the usefulness of designating a quay, unless one has guarantees in case there is a problem.

• Prefer DDU or DDP to DEQ if the seller takes responsibility for the costs and risks of the transfer from the quay to another place (transport terminal, warehouse)

DDU = DELIVERED DUTY UNPAID …(named place of destination)

Type of sale: at destination

DDU is a new incoterm which is the subject of a commercial offer and enhances the seller's position as the goods are transported at the seller' risk and cost as far as the buyer's premises.

From then on, the apportionment of the costs is made according to the same principle as for the Incoterm FCA.

• Seller: The seller places the goods at the buyer's disposal, at the place named in the importing country.

• Buyer: The buyer is responsible for the import Customs procedures, duties and taxes. The novelty in 2000 lies in specifying that the unloading of the transport vehicle at its destination is henceforth the responsibility of the buyer.

NB :
The delivery takes place:
when the named place of destination is located in the buyer's premises or any other place designated by the buyer: i.e. when the goods have been placed at the buyer's disposal on the means of transport
not unloaded.
when the place of destination is any other place than the one indicated above: when the goods have been loaded onto the means of transport used for collection provided by the buyer or by any other person acting on his behalf.

This division is clear, DDU buyers will no longer be asked to pay handling costs, "participation in stripping", warehousing , etc. if they buy DDU. Already in the 1990 version, the incoterm DDU had made provision for the delivery to take place in another place than the buyer's premises, but in the 2000 version, the novelty is that the "Means of transport used for collection provided by the buyer" is evoked. Explicitly, it is suggested that there is forwarding.

DDP = DELIVERED DUTY PAID… (named place of destination)

Type of sale: at destination

• Seller: Here the seller has a maximum number of obligations, the transfer of costs and risks takes place on delivery at the buyer's. The import Customs clearance is his responsibility too!

• Buyer: Takes delivery at the named place of destination and pays the unloading costs.

Remark:

When someone from outside Europe sells DDP to his French customer, he has to pay, to the forwarding agent who has carried out the import Customs procedures, "Customs clearance costs", i.e. the fees of a Custom house broker of course, but also the duties and the VAT. How can someone from outside Europe recoup French VAT? If he is not liable in France, he will not be able to recoup this VAT, unless he designates a "fiscal representative"... It was so much easier to share the obligations between the buyer and the seller: the seller paid the fees (Customs fees) and the duties (non recouperable) and the Frenchman paid the VAT.

In order to agree on the same sharing, an "explicit clause" as for the other "variations", must be written into the contract.

Exporters! The incoterms are a norm accepted world wide. As such, like all norms (industry, quality, pollution), their designation admits of no divergence. Only use the standard abbreviations. Any othe code will be forbidden!
And like any norm, you must refer to it explicitly. Like horsepower DIN or the ISO 9002, the three letters of the incoterm must be followed, besides in agreed places, by the comment "Incoterm" or "Incoterm ICC".

Do not hesitate to call upon a firm of international lawyers.

The present trend in international trade is taking shape in the fact that the buyer is being relieved of all logistic concerns. This enhances the position of the exporter. The terms of a contract must be carefully negotiated for a first shipment and especially in the case of high risk countries where it will be advisable to use a documentary credit as means of payment.

US Incoterms

BE CAREFUL  !
The American INCOTERMS USA (REVISED AMERICAN FOREIGN TRADE DEFINITIONS-1941, FOREIGN TRADE DEFINITIONS or UNIFORM COMMERCIAL CODE, UCC) do not have quite the same meaning as the international INCOTERMS. Thus an American who sells to you FOB New York, could explain to you that this means that the loading costs in New York are your responsibility (almost as much as the shipping freight New York / Le Havre!) or FOB Las Vegas (which has no port) as he is applying to you the « FOB
Factory » valid only in the USA.

The American FOBs can be interpreted in different ways, so it is imperative to specify the conditions of delivery by stipulating in the contract «Incoterm  FOB New York, International Chamber of Commerce Incoterms».

Law governing the contract:

The two parties face three possibilities:

• retaining the law of the exporting country: It will often be the seller's wish to see his law applied given that it is the law he knows best. However, it is not always the best solution. Some laws, like French or Belgian law, give better protection to the buyer.
• retaining the law of the importing country: This law may be more attractive for the exporter when it is less restricting, but he must then know it well and master it, for it would be dangerous to be subject to regulations that one is totally or partially ignorant of.
• retaining the law of a third country: This choice makes it possible to neutralize legal nationalism. It is often a choice made out of commercial concern, for reasons of compromise or convenience (in the case where the court of competent jurisdiction belongs to this third country).

NB : Swiss law is often recommended in this respect, as it is rather favorable to the exporter and especially, it has the advantage of belonging to a neutral State, which is a plus for the parties when conducting commercial negotiations.