Customs Advice – Incoterms 2010

What are the International Commercial Terms (INCOTERMS)?

INCOTERMS are a set of rules developed by the International Chamber of Commerce to establish the responsibilities, the costs, and the risks related to the delivery of goods in international sale contracts. In addition to requiring that the shipment be organised differently, Incoterms define how the cost of carriage and the associated risks should be apportioned.

List of INCOTERMS divided into 2 groups:

First group of Incoterms:

The 7 Incoterms listed below may be used with any mode of transport:

- EXW – Ex Works
- FCA – Free Carrier
- CPT – Carriage Paid To
- CIP – Carriage and Insurance Paid To
- DAT – Delivered At Terminal
- DAP – Delivered At Place
- DDP – Delivered Duty Paid

- EXW – Ex Works
The seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at any other agreed place (factory, works, or warehouse).

- FCA – Free Carrier
The seller delivers when it places the goods at the disposal of the carrier or of any other person designated by the buyer at the seller’s premises or at any other agreed place.

- CPT – Carriage Paid To
The seller delivers when it places the goods at the disposal of the buyer at an agreed place. The seller is responsible for the transportation costs to the agreed place of destination.

- CIP – Carriage and Insurance Paid to
The seller delivers the goods to the carrier at an agreed place. The seller is responsible for the transportation costs associated with delivering the goods and must also provide insurance cover against loss or damage to the goods during carriage.

- DAT – Delivered At Terminal
The seller delivers the goods when it places at the disposal of the buyer at an agreed terminal at the port or place agreed. This incoterm replaces the old DDU (Delivered Duty Unpaid) and clarifies an ambiguous aspect of the former incoterm, and states that the costs of warehousing at the destination and the costs associated with customs operations to destination are to be paid by the buyer.

DAP – Delivered At Place
The seller delivers the goods when it places them at the disposal of the buyer and ready for unloading at the place of destination. DAP also replaces DDU.

- DDP – Delivered Duty Paid
The seller delivers when it places the goods at the disposal of the buyer ready for unloading in the agreed place of destination. The seller bears all costs associated with the transportation, including customs duties and import taxes. This incoterm places the maximum obligation on the seller.

Second group of Incoterms:

This group includes 4 Incoterms rules which are applied when the place of delivery and the place to which the goods will be carried are both ports. For this reason, these rules may be used only if a part of the carriage is by sea:

- FAS – Free Alongside Ship
- FOB – Free On Board
- CFR – Cost and Freight
- CIF – Cost Insurance and Freight

FAS – Free Alongside Ship
The carrier delivers the goods, leaving them alongside the vessel (e.g. on a quay) nominated by the buyer at the named port of shipment. If the goods are containerised, FAS is not recommended.

FOB – Free On Board
The seller delivers the goods placing them on board the vessel nominated by the buyer at the agreed port of shipment.

CFR – Cost and Freight
The seller delivers the goods on board the vessel or procures the goods which have been delivered on board at the agreed and specified port of shipment.

CIF – Cost Insurance and Freight
The seller delivers the goods on board the vessel or procures the goods which have been delivered on board to the specified port of shipment. The seller must also provide insurance cover against the risk of loss of or damage to the goods during the carriage.

In order to avoid misunderstandings, unexpected costs, and delays in the transportation, it is recommended that the parties specify the exact point to which the Incoterm refers. E.g. EXW Milan – FOB Hong Kong port – CPT Hong Kong airport.

In international carriage, insurance, is automatically activated and in case of loss, damage or theft, it gives the right to minimum compensation. This type of insurance is called carrier’s insurance. However, such compensation, is not calculated on the basis of the true value of the transported goods, but is calculated based upon the weight and the chosen mode of transport (on average this compensation is equal to €1 per Kg). For better guarantees, it is necessary to provide an additional insurance policy with higher limits of indemnity and greater coverage.

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