Incoterms 2010: The Definitive Guide 202

If you just want to have a quick check about each Incoterm 2010, you can download this comprehensive Incoterms chart.

If you are new to importing from China and have any problem with Incoterms in 2020, please find answers from below questions, let me know if you cannot find your interested topic answer.

What is Incoterms 2010?

Incoterms stands for international commercial terms.

Incoterms 2010 is, in fact, a set of rules recognized by state entities, suppliers and lawyers worldwide as a comprehensive description of different terms in the international trade.

Incoterms 2010 definitions cover the duties and rights of the trading parties in the case of goods supply.

Incoterms represent a variety of trade rules, which are gathered in categories (named in the first three letters).

Each of these categories displays business practices in international sale contracts.

In general, Incoterms 2010 describe the costs, risks and main responsibilities which are connected with the delivery of goods from the supplier to buyer.

How many Incoterms 2010 are there?

There are 11 sets of rules in Incoterms 2010 in total.

Seven of these sets can be used for any type of transport of the main carriage.

All terms that are part of Incoterms are indicated in the form of a three-letter abbreviation, the first letter in which indicates the time and place of the transfer of obligations from the supplier to the buyer:

• Group E: obligations pass to the buyer directly at the time of dispatch and, accordingly, at the place of dispatch of the goods;
• Group F: the point of transfer of obligations is the terminal of departure, provided that the bulk of the transportation remains unpaid;
• Group C: the payment for the main transportation is made in full, obligations are transferred at the time of receipt of the goods at the terminal of arrival;
• Group D: full delivery, when the transfer of obligations is carried out at the time of acceptance of the goods by the buyer.

What are the most common Incoterms 2010?

The system of Incoterms was set to clarify international trading rules for both buyer and seller.

In daily practice, it is extremely easy to choose the wrong Incoterms set, which will eventually confuse the trading deal and relations between trading parties.

So if you don’t want to dig deeper inside the complicated rules of Incoterms 2010, you can use the most common sets listed below:

1. DDP (Delivery Duty Paid).
2. EXW (Ex-Works).
3. DAP (Delivered At Place).
4. DDP (Delivery Duty Paid).
5. FOB (Free on Board).

These Incoterms are the most popular among the trading representatives because of the simplicity of inner terms both for buyer and seller.

However, we strictly recommend you to become familiar with all Incoterms so you can make your choice with a full understanding of all processes.

Please, follow our FAQ to become pro in this topic.

Are Incoterms 2010 mandatory?

The code of rules does not have the status of an international source of law.

However, its provisions are mandatorily taken into account by government agencies, including customs authorities and courts, if the contract contains references to the delivery basis or disputes of a foreign economic orientation.

In other words, it is a reflection of generally accepted universal concepts, rights, and obligations in the sphere of trade.

In some countries, the document is binding and received the status of law.

This item is important to consider when concluding supply agreements with residents.

In this case, the parties are obliged to indicate in the contract a clause on the reluctance to be guided by the provisions of the regulatory action, if there is no such need.

Why are Incoterms 2010 important?

If you want to become a professional in international trading, obviously, you have to learn a lot of things about this topic, which includes the Incoterms 2010.

These rules cover practically all known scenarios related to transportation, customs clearance, import and export procedures, etc.

Who created Incoterms 2010?

The development of Incoterms was first conceived by the International Chamber of Commerce (ICC) in 1921, and this idea was realized in 1936 when the first edition of Incoterms rules appeared.

In 1923, the ICC Trade Terms Committee, with the support of national committees, developed the first six rules: FOB, FAS, FOT, FOR, CIF, and C&F, which were the forerunners of future Incoterms rules.

This was the beginning of a long and eventful history of Incoterms rules, which continues in our time.

On January 1, 2011, a current version of the rules, Incoterms 2010, was introduced.

What is Incoterms 2010 DAP?

DAP stands for Delivery At Point.

DAP set of rules tell us that the seller is obliged to provide the buyer with the products which are released in the export customs and are ready for unloading from the transport at the specified destination.

The rules of DAP impute the supplier the need to pay all the fees and costs connected with the transportation of products to the final destination.

What is Incoterms 2010 DDP?

DDP is an abbreviation for Delivered Duty Paid.

Speaking of DDP, the supplier has to process all the export and import customs which will make the products ready for unloading from the selected type of transport at a certain place.

Also, the supplier has to think of all costs and fees related to products transportation, which includes all exporting and importing processes.

Note that these rules can’t be used if the supplier cannot ensure the import customs fulfillment.

So, if the parties still want to exclude such obligations from the supplier and use the rules of DDP, this should be clearly defined in the contract of goods’ sale.

The DDP rules are applicable in the case of goods transportation by any mode, even including the multimodal transport type.

You can see the word “carrier” in the DDP description of Incoterms.

In this matter, it means any entity who takes the obligation to arrange or provide transportation of products by some type of delivery route under the agreement of carriage.

What are Incoterms 2010 FAS?

FAS is short for Free Alongside Ship.

Under the FAS agreement, the supplier has to deliver certain products along the side of the ship at the berth in the specified port.

The term FAS can only be used when transporting goods by sea or inland waterway.

The risk of loss or damage to the goods passes to the buyer when the goods are located along the side of the vessel.

The seller’s main responsibility is to transport the goods not just to the port, but to the indicated berth where the ship chartered by the buyer moored, or to the barge (without loading onto the ship).

The buyer is obliged to load the goods onto the chartered vessel, pay for the vessel’s freight, unload it at the port of arrival, perform import customs clearance with payment of import customs duties and fees, and deliver the goods to the final destination.

What is Incoterms 2010 CIP?

CIP is short for Carriage and Insurance Paid to.

This set of Incoterms 2010 rules shows us the situation where the supplier has to transfer the insured goods, released in the customs export mode, to the carrier he chose before to transport the goods to the destination.

Considering the CIP rules, the buyer takes all risks of damage or loss of the products, as well as other costs after the goods are transferred to the carrier, and not when the goods reach the final destination.

All risks which arise after loading the goods into the vehicle and all the costs at the destination point are distributed to the buyer.

However, the supplier must pay all costs connected with the freight of products to the certain area, perform export customs clearance for the export of goods with payment of export duties and other fees in the country of departure.

Keep in mind that the supplier is not obliged to complete customs procedures for importing goods, pay import customs duties, and perform all the connected with import processes.

Finally, the CIP rules impute the supplier of some insurance fees.

This party has to pay for risks of loss and damage to the goods during transportation to the buyer.

But, please note that under the rules of the CIP, the supplier is obliged to provide insurance with minimal coverage.

So, if you want as a buyer to have insurance with a larger coverage, you have to either specifically agree on this with the supplier, or conclude additional insurance by yourself.

You can freely use the CIP rules for the transfer by any type of transport, including multimodal transport.

In the situation with shipment by several carriers, the supplier transfers its risks at the time of transference of products to the first carrier.

What is Incoterms 2010 FOB?

Let’s try to figure out what the term FOB means.

So, FOB is short for Free on Board and it tells that the supplier completes the delivery when the cargo passes the ship’s rail at the specified port of shipment.

That is why all the connected risks of damage or loss to products and all the relevant costs are borne by the buyer from this moment.

The FOB rules state that the supplier must make all the clearance in the case of export.

Please remember that you can use this set of rules only if the carrier transports the goods by inland waterway or maritime transport.

In the case when the parties don’t want to deliver the products onboard, the term FCA should be used.

What does FCA Incoterms 2010 mean?

FCA (Free Carrier) Incoterms 2010 describe the deal in which the supplier has to transfer the products passed all customs procedures to the carrier, specified by the buyer, in the named place.

It should be noted that the choice of place of delivery will affect the obligations of loading and unloading goods.

If delivery takes place at the supplier’s premises or another agreed location, the supplier is responsible for loading the products.

It is recommended to identify the point of delivery because the risk passes to the buyer at this moment.

What is CIF Incoterms 2010?

CIF (Cost, Insurance and Freight) Incoterms 2010 show the situation when the supplier has to transfer the insured goods on board of the ship and deliver them to a destination port.

This is the moment when the supplier’s goods obligations pass to the buyer.

According to the CIF rules, the buyer takes all risks of losses, as well as other expenses after the goods are placed on board of the ship at the certain port (not when the goods reach the destination).

In the case of CIF contract, the supplier is obliged to pay the costs and freight required to deliver the goods to the specified port of destination, perform export customs clearance for goods with payment of all connected duties and other fees in the country of departure.

However, you have to know that such a supplier is not obliged to process customs formalities for importing goods or take part in other import customs procedures.

Finally, the CIF contract rules also place on the supplier the obligation to purchase marine insurance against the risk of loss and damage to the goods during the transportation process.

Like in the case of the CIP set of rules, the supplier is required to provide minimal coverage insurance, so if the buyer wants to have insurance with large coverage, he must either specifically agree on this with the seller, or apply for additional insurance agreement.

Note: the CIF set of rules can be used only when transporting goods by sea or inland waterway transport. If the parties do not want to deliver the products in such a way, they should use the CIP contract, which was already mentioned previously in this article.

What is CFR Incoterms 2010?

CFR stands for Cost and Freight.

What does it mean?

These terms state that the supplier finishes the delivery when the products pass on board of the vessel at the port of shipment and are delivered to the port of destination.

According to the CFR delivery basis, the buyer assumes all risks of loss or damage to the goods, as well as other expenses after placing the goods on board of the ship at the certain port.

The CFR delivery terms impute on the supplier the obligation to pay the costs and freight required to bring the products to the certain port of destination and to perform export customs clearance.

The buyer, on the other hand, has to perform customs formalities for import goods, pay import customs duties and perform all other import customs procedures.

The term CFR Incoterms 2010 can be used only when transporting goods by inland or sea waterway transport.

If the parties are not going to deliver the goods across the ship’s rail, the CPT rules are better to be used.

What is CPT Incoterms 2010?

CPT is short for Carriage Paid To.

According to the CPT rules, the buyer assumes all risks of loss or damage to the goods, as well as other expenses after the goods are transferred by the seller to the carrier (not when the goods reach the destination).

The seller must pay the costs and freight required to deliver the goods to the specified destination, perform export customs clearance for the goods with payment of all duties and other fees in the country of departure.

But, please note that the supplier is not obliged to perform customs formalities for importing goods, pay corresponding customs duties or deal with other import procedures.

These terms can be applied for delivery by any mode of transport, including multimodal transport.

In the case of transportation to an agreed destination by several carriers, the transfer of risk from the supplier will occur at the time of transfer of the goods to the first of carriers.

What is EXW Incoterms 2010?

EXW (Ex Work) terms describe the situation when the seller is considered to have fulfilled the delivery obligations when he transfers products to the buyer’s business or in another specified place (e.g. warehouse, factory, shop, etc.).

Under the EXW rules, the supplier is not responsible for loading the goods onto the vehicle provided by the buyer, neither for making customs payments nor for customs clearance of the exported goods, unless otherwise specified.

According to the EXW rules, the buyer bears all the risks and costs of moving goods from the seller’s territory to the specified destination.

If the parties wish the seller to take over the responsibility of loading the goods at the place of dispatch and bear all the risks and expenses for such a shipment, this should be clearly stated in the relevant addendum to the contract of sale.

The term EXW cannot be used when the buyer is not able to perform export formalities.

What is DAT Incoterms 2010?

DAT is an abbreviation for Delivered At Terminal.

This set of terms states that the seller is considered to have fulfilled his obligations when the goods released in the customs regime of export are unloaded from the transport and placed at the disposal of the buyer at the agreed terminal.

The term “terminal” in the basis of delivery DAT means any place, including air/ auto/railway cargo terminal, berth, warehouse, and so on.

The DAT terms of delivery impose upon the seller all the risks associated with transporting the goods and unloading them at the specified terminal.

Also, the seller is obliged to pay the costs and freight necessary for the delivery and unloading of goods to the specified terminal, perform export customs clearance in full.

On the other hand, the buyer is obliged to perform customs formalities for import and pay all the connected fees or duties.

The DAT terms may be used in the carriage of goods by any mode of transport, including multimodal transport.

What is a multimodal transport in the case of some Incoterms rules?

Multimodal transportation definition is used for the transportation of products under an agreement with one carrier using various modes of transport.

The carrier has the right to use the transport of other contractors, but all responsibility lies with the general contractor, from whom the transportation was ordered.

The organization of multimodal transportation of products should begin with comprehensive route planning.

Carefully consider a timetable with overload points and stops along the way.

Multimodal transportation can be used in the next cases:

• when there is no direct communication by a single mode of transport between the supplier and the consignee;
• direct communication by a single mode of transport is not suitable for the consignee due to the high price or long delivery time.

The consignee can also order transportation by different modes from multiple carriers; this type of transportation is called intermodal.

There is a certain difference between multimodal and intermodal transport.

Compared with multimodal, the latter has several disadvantages:

1. The number of organizational and paperwork is increasing.
2. It is very difficult to find the guilty party if the goods were received not on time, or in an imperfect condition.
3. If carriers do not use their transport, the price is higher, as the number of agents and their agent fees increases.

What are the Incoterms 2010 for air/road/rail transport?

This group includes the terms EXW (Ex Works), FCA (Free Carrier), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), DAT (Delivery at the Terminal), DAP (Delivery At Place) and DDP (Delivered Duty Paid).

They can be used even if there is no shipping at all.

However, it is important to remember that these terms can also be applied when a vessel is partially used during transportation.

What are the Incoterms 2010 for maritime transport?

The next rules are used for maritime and inland water transport only:

1. FAS (Free Alongside Ship).
2. FOB (Free on Board).
3. CFR (Cost and Freight).
4. CIF (Cost Insurance and Freight).

What is the difference between Incoterms 2000 and Incoterms 2010?

First of all, in the 2010’ Incoterms edition the number of terms was reduced from 13 to 11.

But at the same time, two new positions were introduced (DAP and DAT).

And the four least popular terms were abolished (DAF, DES, DEQ, and DDU).

In fact, the term DAT (Delivery at Terminal) replaces the term DEQ.

However, the DAT set of rules, unlike DEQ, is applicable for multimodal transport.

According to logistics experts, the delivery to the DAT terminal corresponds most of all to the logistics practice in the port.

The term DAP (Delivery to Point) makes important to specify the exact destination.

It replaces three terms (DAF, DES, DDU).

Speaking of the FOB, CFR, and CIF, the risks and costs are set in a new way.

In Incoterms 2000 the risk passes on after the delivery has been made to the ship’s side.

In Incoterms 2010, on the other hand, the transfer of risks takes place after full loading of the cargo on board of the ship.

You can check Incoterms 2000 via this link.

Can Incoterms 2010 be used for domestic shipments?

Yes, Incoterms 2010 may apply both for domestic and international transportation.

Do Incoterms 2010 cover title transfer?

Incoterms 2010 is mostly a set of rules connected with transportation and customs fees and procedures.

That is why these terms do not determine ownership or transfer title to the goods, nor contain payment rules.

Which Incoterms 2010 are the most favorable for the seller/buyer?

As you can already assume, various Incoterms 2010 rules can be profitable for buyers and seller with a slight difference.

Here we’ll try to figure out the most favorable Incoterms for such parties.

Let’s start with buyers.

FOB should be your #1 choice because under these rules the supplier has to leave the products at the port, prepared and ready for international departure.

As a buyer, you have to hire the shipping company.

This gives you total control of all expenses and coordination of the cargo delivery.

FOB terms are very flexible and useful.

Also, buyers can use EXW and DAP with great success, however, these sets require a good understanding of trading laws and regulations.

As for suppliers, CPT or similar rules where the goods are passed to the carrier without exporting procedures should do just fine.

Incoterms 2010 and revenue recognition: how do these concepts connected with each other?

Please keep in mind that Incoterms 2010 are not written for revenue recognition and the ICC (International Chamber of Commerce) guide specifically says that’s not what they do.

They cover only the supply delivery processes, transfers of risk, import/export procedures and very little else.

When the next Incoterms set of rules will be created?

The work under a new set of Incoterms rules has already been started.

Presumably, they’ll come out in 2020.

What kind of insurance obligations could be found in Incoterms 2010?

You have to remember that two Incoterms 2010 only (CIF, CIP) have a provision about the freight insurance, which has to be arranged and paid for by the supplier.

In practice, it can be quite hard to identify the moment in a journey where the damage takes place.

So it is most recommended to ensure the delivery on a warehouse-to-warehouse term.

Also, the freight insurance in this case usually doesn’t cover consequential losses, like the knock-on effects of buyer missing a contract deadline or a sales season.

If desired, this risk can be included in the insurance agreement.

Incoterms 2010 chart of responsibility: what is it?

Incoterms 2010 chart of responsibility is a useful scheme which shows all the terms in one place, with a clear comparison of rules for each set of terms.

You can see the comparison chart in the picture below.

What are the payment terms in the case of Incoterms 2010?

You should know that Incoterms 2010 do not contain any kind of payment terms connected with the purchase of goods.

So, the payment terms in the case of Incoterms refer to all costs and fees for customs and transportation process.

Where can I find an easy tutorial for Incoterms 2010?

It is hard to mention the one and only best way to learn Incoterms with ease.

There are a lot of useful articles and videos on the Web which can help you to become more familiar with Incoterms 2010.

For example, you can check this Youtube video if you want a simple descriptive guide to this topic.

What is the difference between CISG contracts and the Incoterms 2010?

There is no clear connection between Contracts for the International Sale of Goods (CISG) and Incoterms 2010.

CISG is a set of applicable laws for sales of goods between businesses situated in different countries.

Incoterms are a set of rules (not obligatory laws) that simply specify parties’ respective rights and obligations about transportation and delivery of goods (not just internationally but for domestic purposes as well).

You can use both CISG and Incoterms in your trading practices.

Do Incoterms 2010 matter when calculating custom duty?

Yes, it has a huge matter because the import duty and payable taxes are calculated following the complete shipping value, which includes the cost of the imported goods, the cost of freight and the cost of insurance.

That is why it is possible to save on the small amount of taxes if you conduct a good freight cost.

Are Incoterms 2010 required in an invoice for cross-border shipping transaction? Or can I issue an invoice without these terms?

As it was said previously in this FAQ, using the Incoterms 2010 is not compulsory.

You can issue an invoice without the terms as long as the other party is agreed with it.

Can I use Incoterms 2010 on Alibaba/Aliexpress?

Incoterms 2010 can be used by Alibaba suppliers, the vast majority of which are actual manufacturers.

However, you won’t see Incoterms in the case of Aliexpress because all the transportation and customs procedures are already figured out by Aliexpress sellers and carriers (you can only choose the type of carrier when ordering on Aliexpress).

Ask an expert about incoterms now

If you want to dig into the all incoterms, I think you can keep reading this guide. You will be an expert about incoterms.

The best part:

Whether you are fresh to international shipping or want a refresher on the details of Incoterms, I have you sorted.

As an experienced freight forwarder, the three-lettered acronyms are my daily cup of tea.

Since shipping from China is a complicated business, it is essential you understand the trade’s vocabularies, related costs and risks and how it all impacts you.

When brokering an international sales agreement, you should be keen on the terms of sales regarding the sale price.

Therefore, to reduce unnecessary confusion, use International Commercial Terms, the commonly accepted serial of international trade terminologies.

Incoterms are standardized rules developed by the International Chamber of Commerce (ICC), which clarify the predominantly applied international trade terms.

The trade terms closely correlate with the U.N. Convention on Contracts for the International Sales of Goods.

They are recognized and enforced by all key trading nations.

Incoterms are a voluntary, assertive, universally accepted and complied with text for defining your responsibilities.

And, that of your seller during the carriage of goods in contracts of sale for international trade.

They aim to plainly explain the risks, costs, and responsibilities associated with the shipment of goods.

But, it is good I made you aware that Incoterms are just a section of the entire international trade transaction agreement.

They do not mention anything to do with the price to be paid f