INCOTERMS (International Commercial Terms) are rules about the delivery conditions for goods. They are used to divide the costs of international business transactions and define the responsibilities of both the buyer and seller, while reflecting the current practices in the international transport of goods.
INCOTERMS are a set of international rules that are overseen by the International Chamber of Commerce, which determines the extent of the commerce clauses included in international sales contracts.
INCOTERMS are also called “price clauses”, since each INCOTERM determines the cost elements of a goods transfer. The choice of INCOTERM affects the cost of a contract.
The purpose of INCOTERMS is to provide a set of international rules for the interpretation of the terms used in international trade.
- The scope of the price
- At what time and where the risk for the goods transfers from the seller to the buyer
- The place of delivery of the goods
- Who hires and pays the transport
- Who hires and pays the insurance
- Which documents confirm each phase, and their cost
Types of INCOTERMS
INCOTERM CFR - Cost and Freight (named port of destination)
The seller fulfills his obligation when the goods pass the ship's rail at the shipping port. The seller is responsible for all costs of export, customs clearance, freight and costs required to bring the goods to the port of destination, not including insurance. Costs of unloading at the destination port are borne by the buyer.
This term can only be used for transportation by sea or inland waterways.
INCOTERM CIF - Cost, Insurance and Freight (named port of destination)
The seller fulfills his obligation when the goods pass the ship's rail at the shipping port. The seller must pay all costs of freight, insurance, export customs clearance and all necessary costs to bring the goods to the port of destination.
The seller is required to obtain minimum insurance coverage only to the destination port for the value of the goods.
The buyer assumes the risk at the time the goods are transferred on board the ship, despite the fact that they are covered by an insurance policy. This policy benefits the seller who, in case of lost or damaged merchandise, makes a claim directly to the insurance company.
This term can only be used for sea or inland waterway transport.
INCOTERM CIP - Carriage and Insurance Paid to (named place of destination)
The seller pays the costs of freight transportation required to carry the goods to the place agreed with the buyer. Additionally, the seller secures and pays for insurance (i.e., a policy with minimum coverage) against the risk that the purchaser may have for loss or damage of goods.
If the buyer wants more coverage, this must be arranged with the seller, or a separate insurance policy must be purchased by the buyer.
This INCOTERM can be used in any mode of transport, including multimodal transport, with the risk passing from seller to buyer when delivered to the first carrier.