INCOTERMS 2000

Having examined and understood the simple model of a contract for the sale of goods, it is now time to look at various contracts that are used for international sales, and to see how they vary from our basic model. There are many standard terms of sale in everyday use and in order to ensure these terms are universally understood, the International Chamber of Commerce publish an agreed set of definitions called Incoterms. The current edition is Incoterms 2000. The outline of the Incoterms, which are set out below, is only a guide to the buyers’ and sellers’ responsibilities under the individual contracts. Refer to the International Chamber of Commerce publication INCOTERMS 2000. It is important to understand that if the parties to a contract intend to be bound by the definitions in Incoterms, they must state this explicitly. Unless they do, there is no certainty that the clarity of the definitions afforded by Incoterms will apply. Incoterms are designed to cover a wide range of terms, from sales at the point of origin (for example the Seller’s factory) such as EXW through to delivered at the Buyer’s door (DDP). These terms are not merely inventions of the International Chamber of Commerce, but reflect the terms on which international traders prefer to do business. As we will see, there are many reasons why the parties to the deal will decide on the most appropriate term to be used, including the type of goods, the forms of transport to be used, the method of payment and the state of the market at the time. International trade is a dynamic business and its customs and practice change with the advent of new modes of transport, improved communications, changes in demand and supply, banking arrangements, national and international laws and hundreds of other factors. As a result, the terms on which traders do business evolve to suit the changing times. To cope with this, the International Chamber of Commerce regularly review and revise Incoterms in accordance with the preferences of trade and changes in practice, after consultation with trade bodies and other organisations. Many recent amendments, for example, have been to facilitate the increased use of electronic data interchange. Incoterms encompasses the following terms:

EXW Ex Works

FCA Free Carrier
FAS Free Alongside Ship*
FOB Free On Board*

CFR Cost and Freight*
CIF Cost, Insurance and Freight*
CPT Carriage Paid To
CIP Carriage and Insurance Paid To
DAF Delivered at Frontier
DES Delivered Ex Ship*
DEQ Delivered Ex Quay*
DDU Delivered Duty Unpaid
DDP Delivered Duty Paid
(*) Denotes Maritime Incoterms.
It will be seen that the terms fall neatly into groups. The “E” term (Ex Works) where the seller makes the goods available at his factory or premises, the “F” terms, where the Seller must deliver the goods to a carrier named by the buyer. These are followed by the “C” terms, in which the seller has to arrange the carriage, but without bearing the risk for loss or damage after shipment and despatch. Then finally the “D” terms whereby the Seller bears all the costs and risks needed to deliver the goods to the country of destination. Under each of these terms, Incoterms define the duties of both the Buyer and the Seller in respect of every stage in the transport chain, establishes the division of costs and the stage at which payment must be made, property passes and risk is transferred from one to the other. It must be understood, however, that the risk may not pass at the same time, and we will examine this discrepancy under each of the most important terms.