2011 Incoterms - Uncovered

So what is an Incoterm and why are importers and exporters so excited about them in 2011?

Incoterms or International Commerce Terms are a series of terms used in international trade which are globally accepted to represent conditions and obligations by the various parties involved in the transaction with regard to the delivery of goods sold. These terms are published and reviewed periodically to ensure they remain relevant in today’s international trade environment by the International Chamber of Commerce (ICC).

Clear as mud!?!

Just imagine we lived in a world where Incoterms were unheard off between international buyers and sellers. Let us say that you are a manufacturer of a highly in demand product and you source component parts of your final product from various in-country suppliers. As part of an initiative to make your product more competitive in the market place, you decide to look into how you can find these parts cheaper. You discover an overseas manufacturer who is selling an essential part in your final product for less than half the cost you are paying now. You agree to a price and a date to take delivery with the new overseas supplier.

The said date comes around and you have not received any of the parts. You contact your new supplier in the foreign country and they tell you that the parts are ready and are waiting for you to come and pick them up.

Ophs! When you placed your order with the supplier, you assumed that price would include delivery to your door and it would include all the charges with respect to getting it there.

This is where Incoterms play a part to avoid ambiguity between the buyer and the seller with respect to the responsibilities, costs and allocation of risks when it comes to transacting in the international world of trade.

Now that we got the basics of what Incoterms intend to help us do, let us get to what types of Incoterms there are and what changed in 2011.


Incoterms are broken down into various categories and apply with certain conditions. Furthermore in 2010 there were 13 Incoterms and now in 2011, there will now be a total of 11 terms instead of 13, with 2 new additions, DAP and DAT and 4 deletions, DAF, DDU, DEQ and DES. This was done by the ICC in light of changes in cargo security and Electronic Data Interchange playing a bigger role in today’s international trade.

Listed below are the latest set of Incoterms and brief notes on them. For a full explanation of use conditions and more detail, please refer to http://www.iccwbo.org/

Applies to all modes of transportation:
• EXW

Short form for: Ex-Works
Usage: EXW <Named Place>
Description:
The seller makes the goods available at his premises. The buyer is responsible for all charges. The buyer pays all transportation costs and also bears the risks for bringing the goods to their final destination.

• FCA

Short form for: Free Carrier
Usage: FCA <Named Place>
Description:
The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place.

• CPT

Short form for: Carriage Paid To
Usage: CPT <Named Place of Destination>
Description:
The seller pays for carriage to the named point of destination, but risk passes when the goods are handed over to the first carrier.


• CIP

Short form for: Carriage and Insurance Paid
Usage: CPT <Named Place of Destination>
Description:
Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.

• DAT
Short form for: Delivery At Terminal
Usage: CPT <Named Terminal>
Description:
Deliver the goods to the buyer at the designated Terminal in the harbor. The buyer has to make the necessary clearance arrangements.

• DAP
Short form for: Delivery At Place
Usage: DAP <Named Place of Destination>
Description:
Deliver the goods to the buyer on the arriving mean of transport ready for unloading at the named place of destination.

• DDP
Short form for: Delivery Duty Paid
Usage: DDP <Named Place of Destination>
Description:
This term means that the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty.

Applies only for sea and inland waterway transport:
• CFR

Short form for: Cost and Freight
Usage: CFR <Named Destination Port>
Description:
Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods have crossed the ship's rail. Insurance is at the cost of the Buyer.

• CIF

Short form for: Credit, Insurance and Freight
Usage: CIF <Named Destination Port>
Description:
Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods have crossed the ship's rail. Insurance is at the cost of the Buyer.

• FAS

Short form for: Free Along-side Ship
Usage: FAS <Named Loading Port>
Description:
The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export.

• FOB

Short form for: Free On Board
Usage: FOB <Named Loading Port>
Description:
The seller must themselves load the goods on board the ship nominated by the buyer, cost and risk being divided at ship's rail. The seller must clear the goods for export. Maritime transport only but NOT for multimodal sea transport in containers (see Incoterms 2010, ICC publication 715).

The buyer must instruct the seller the details of the vessel and port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder.