Know Your Incoterms: An Overview Incoterms
Incoterms are a set of rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts. Shippers worldwide use standard trade definitions (called Incoterms) to spell out who’s responsible for the shipping, insurance, and tariffs on an item; they’re commonly used in international contracts and are protected by International Chamber of Commerce copyright. Incoterms significantly reduce misunderstandings among traders and thereby minimize trade disputes and litigation. Familiarize yourself with Incoterms so you can choose terms that will enable you to provide excellent customer service and clearly define who is responsible for which charges.
What are the Current Incoterms® 2010?
In 2010, the two main categories of Incoterms were updated and are organized by modes of transport. Used in international as well as in domestic contracts for the first time, the new groups aimed to simplify the drafting of contracts and more clearly stipulate the obligations of buyers and sellers:
NOTE: International Chamber of Commerce (ICC) has already published Incoterms® 2020 rules that will be in effect as of January 1, 2020.
Although the ICC recommends using Incoterms® 2020 beginning January 1, 2020, parties to a sales contracts can agree to use any version of Incoterms after that date. It is important, however, to clearly specify the chosen version of Incoterms being used (i.e., Incoterms® 2010, Incoterms® 2020, or any earlier version).
Incoterms® 2020 is available for purchase on the ICC’s ecommerce platform, ICC Knowledge 2 Go in both print and digital formats. Incoterms® 2020 edition may also be purchased from the ICC local representative. ICC also developed series of launch events and training seminars.
Group 1. Incoterms that apply to any mode of transport are:
- 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
Group 2. Incoterms that apply to sea and inland waterway transport only:
- FAS Free Alongside Ship
- FOB Free on Board
- CFR Cost and Freight
- CIF Cost, Insurance, and Freight
- View Incoterms 2010 with Definitions
Most B2B ecommerce agreements will use EXW, CPT, or CIF; most business-to-consumer (B2C) transactions will use CPT or CIF (and sometimes DDP). Except for DDP, the Incoterms mentioned above require the buyer to pay all tariffs and taxes upon arrival. To make sense of all these terms, you should take the time to understand their usage. For more on ecommerce and exporting, visit the eCommerce Resource Center.
- When the goods you export arrive at their destination, the importing country requires that all applicable tariffs (import taxes levied by the destination country) and local taxes, including value-added tax (VAT), be paid. Many companies require the buyer to pay these tariffs and taxes.
- Buyers typically want to know the final price, with shipping and taxes included (known as the “landed cost”), before they agree to buy, but you might not be able to provide it—tariffs and taxes vary widely throughout the world, so determining those rates before you ship can be difficult. Be clear about your policy on tariffs—specifically, who pays and when payment will be due.
- The shipping companies you select often act as freight forwarders, helping you complete shipping documents, helping you estimate duties and taxes, pre-paying them for you, and then invoicing you. If you use the U.S. Postal Service for lighter weight shipments, its local partner in the buyer’s country will collect duties and taxes.
Where can I learn more about the new Incoterms?
- View the Make the Export Sale: Shipping Basics video.
- See the Incoterms reference chart and web page.
- Watch an Incoterms webinar.
- Visit ICC for more training on Incoterms, and get a current copy of Incoterms.
- See the logistics page at export.gov, or get help from your local U.S. Commercial Service office.
- For sample language, you can use on your website, check out the Standard Terms for Shipping section on export.gov.
Note: International Chamber of Commerce (ICC) has published the Incoterms® 2020, that will be in effect as of January 1, 2020.
Although the ICC recommends using Incoterms® 2020 beginning January 1, 2020, parties to a sales contract can agree to use any version of Incoterms after 2020. It is important, however, to clearly specify the chosen version of Incoterms being used (i.e., Incoterms® 2010, Incoterms® 2020 or any earlier version).
Incoterms® 2020 is available for purchase on the ICC’s ecommerce platform, ICC Knowledge 2 Go in both print and digital formats. Incoterms® 2020 edition may also be purchased from the ICC local representative. ICC also offers series of launch events and training seminars.