Using Incoterms® transport conditions
The ICC Incoterms® are standardised international terms and conditions for the transport of goods. You and your customers or suppliers can choose one of these agreements and use it to determine who is responsible for transport, costs, and damages.
What are Incoterms®?
Incoterms® are international standardised agreements between seller and buyer about the transport of goods. For example, the Incoterms® arrange who is liable for damages or loss of the goods in transit. The International Chamber of Commerce (ICC) has drawn up the Incoterms®. They revise them every 10 years. The latest version dates from 2020.
Why use Incoterms®?
ICC Incoterms® enable buyers and sellers to make clear agreements about the transport and delivery of a product. This prevents financial losses, such as insurance claims or insufficient profit margins. You choose the agreement that best suits the contract with your customer.
What can you arrange with Incoterms®?
- who arranges the transport and until where
- when the risk of loss or damage to goods passes from the seller to the buyer
- who arranges the transport insurance
- who is responsible for any import and export documents
- who pays the transport costs and additional costs, such as for loading, unloading and packaging
What can you not arrange with Incoterms®?
- price agreements and payment conditions
- warranties or settlement in the event of non-performance
- when ownership of the goods passes from the seller to the buyer
All ICC Incoterms® 2020 at a glance
ICC Incoterms® 2020 has 11 terms of delivery (Incoterm® rules). 4 of these are specifically intended for transport over water. The other 7 apply to all types of transport.
The agreed locations can vary greatly under Incoterms®. For example, the buyer and seller may agree on a location immediately after arrival in the destination country. Or a location centrally located in the destination country. If this difference applies, there are two variants under Incoterm®.
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All types of transport
EXW (Ex Works)
Especially suitable for within the EU. The seller places the goods at the agreed location, for example their own business premises. The buyer arranges transport from there.
FCA-A (Free Carrier - A)
Suitable for full containers. The seller places the goods at the agreed location, for example, their business premises. And loads goods onto the buyer's means of transport.
FCA-B (Free Carrier - B)
Suitable for groupage shipments (small loads from different businesses in 1 container). The seller delivers the goods to the agreed location, for example, a groupage warehouse.
CPT (Carriage Paid To) Switzerland, option: port of Basel
Suitable for container transport. The seller pays for transport to the agreed location after entering the destination country. For example, a border crossing or (air) port. The transfer of costs and risks takes place at different moments.
CPT (Carriage Paid To) Switzerland, option: Zürich, address buyer
Suitable for container transport. The seller pays for additional transport to the agreed location inside the destination country. For example, the buyer's premises. The transfer of costs and risks takes place at different moments.
CIP (Carriage and Insurance Paid To) Switzerland, option: port of Basel
Suitable for container transport. The seller arranges the transport insurance. And pays for the transport to the agreed location after entry into the destination country, such as a border crossing or airport. The transfer of costs and risks takes place at different moments.
CIP (Carriage and Insurance Paid To) Switzerland, option: Zürich, address buyer
Suitable for container transport. The seller arranges transport insurance. And pays for additional transport to the agreed location in the destination country, such as the buyer's company. The transfer of costs and risks takes place at different moments.
DAP (Delivered at Place) option Basel, Germany-Switzerland border
The seller bears costs and risks until the agreed location after arrival in the destination country. For example, a border crossing or (air) port.
DAP (Delivered at Place) option Zürich, address buyer Switzerland
The seller is responsible for the costs and risks until the agreed location. This is further away in the destination country, such as the buyer's premises.
DPU (Delivered at Place Unloaded) option Basel, Germany-Switzerland border
The seller is responsible for the costs and risks until the agreed location after arrival in the destination country. For example, a border crossing or (air) port. The seller unloads the goods.
DPU (Delivered at Place Unloaded) option Zürich, address buyer Switzerland
The seller is responsible for the costs and risks until the agreed location. This is further away in the destination country, such as the buyer's premises. The seller unloads the goods.
DDP (Delivered Duty Paid) option Basel, Germany-Switzerland border
The seller is responsible for the costs and risks up to the agreed location after arrival in the destination country. For example, a border crossing or (air) port. And arranges the import.
DDP (Delivered Duty Paid) option Zürich, address buyer Switzerland
The seller is responsible for the costs and risks until the agreed location.This is further away in the destination country, such as the buyer's premises. The seller arranges the import.
Only for transport by water
FAS (Free Alongside Ship)
Suitable for transport by ship of bulk and general cargo. The seller delivers the goods alongside the departing ship at the agreed port of departure. So, on a barge or the quay.
FOB (Free on Board)
Suitable for ship transport of bulk and general cargo. The seller delivers goods on board a ship at the agreed port of departure. The buyer arranges the ship.
CFR (Cost and Freight)
Suitable for ship transport of bulk and general cargo. The seller pays the transport to the port of destination. The transfer of costs and risks takes place at different moments.
CIF (Cost Insurance and Freight)
Suitable for ship transport of bulk and general cargo. The seller pays the transport to the port of destination and takes out transport insurance. The transfer of costs and risks takes place at different moments.
How do I choose an Incoterms® agreement?
Which Incoterms® agreement you need depends on the type of transport and the wishes of you and your business customer, such as:
- Is the transport only by water or also by land, air, or rail?
- Do you want to provide extra service or minimise your obligations?
- Do you have the network and knowledge to arrange transport and customs formalities in other countries?
How to use Incoterms®
- Use an Incoterm® that suits the transport. Some Incoterms® are only intended for transport by water.
- Record the agreed Incoterms® in a purchase contract and/or your general terms and conditions. Make sure your customer knows the conditions.
This article is a co-production with the HAN University of Applied Sciences.