The new Incoterms 2010 rules were revised by the International Chamber of Commerce and are effective since January 1, 2011. Four terms were eliminated (DAF, DEQ, DES, DDU) and two were added: Delivered at Place (DAP) and Delivered at Terminal (DAT).
The modifications affect obligations, risk transfer, and cost sharing for the seller and buyer, resulting in better clarification and application of the eleven (11) Incoterms, and consistent with the way global trade is actually conducted since the last update in 2000.
In any sales transaction, it is important for the seller and buyer to agree on the terms of sale and know precisely what is included in the sale price. Exporters should choose the Incoterm that works best for their company, but also be prepared to quote on other terms.
The 11 Incoterms consist of two groups and are listed below in order of increasing risk/liability to the exporter. Under the revised terms, buyers and sellers are being urged to contract precisely where delivery is made and what charges are covered. This should avoid double-billing of terminal handling charges at the port of discharge. References to “ship’s rail” were taken out to clarify that delivery means “on-board” the vessel. Insurance, electronic documentation, and supply chain security are addressed in more detail, and gender-neutral language is now used.
Rules for Sea and Inland Waterway Transport:
FAS - Free Alongside Ship: Risk passes to buyer, including payment of all transportation and insurance costs, once delivered alongside the ship (realistically at named port terminal) by the seller. The export clearance obligation rests with the seller.
FOB - Free On Board: Risk passes to buyer, including payment of all transportation and insurance costs, once delivered on board the ship by the seller. A step further than FAS.
CFR - Cost and Freight: Seller delivers goods and risk passes to buyer when on board the vessel. Seller arranges and pays cost and freight to the named destination port. A step further than FOB.
CIF - Cost, Insurance and Freight: Risk passes to buyer when delivered on board the ship. Seller arranges and pays cost, freight and insurance to destination port. Adds insurance costs to CFR.
Rules for Any Mode or Modes of Transportation:
EXW - Ex Works: Seller delivers (without loading) the goods at disposal of buyer at seller’s premises. Long held as the most preferable term for those new-to-export because it represents the minimum liability to the seller. On these routed transactions, the buyer has limited obligation to provide export information to the seller.
FCA - Free Carrier: Seller delivers the goods to the carrier and may be responsible for clearing the goods for export (filing the EEI). More realistic than EXW because it includes loading at pick-up, which is commonly expected, and sellers are more concerned about export violations.
CPT - Carriage Paid To: Seller delivers goods to the carrier at an agreed place, shifting risk to the buyer, but seller must pay cost of carriage to the named place of destination.
CIP - Carriage and Insurance Paid To: Seller delivers goods to the carrier at an agreed place, shifting risk to the buyer, but seller pays carriage and insurance to the named place of destination.
DAT - Delivered at Terminal: Seller bears cost, risk and responsibility until goods are unloaded (delivered) at named quay, warehouse, yard, or terminal at destination. Demurrage or detention charges may apply to seller. Seller clears goods for export, not import. DAT replaces DEQ, DES.
DAP - Delivered at Place: Seller bears cost, risk and responsibility for goods until made available to buyer at named place of destination. Seller clears goods for export, not import. DAP replaces DAF, DDU.
DDP - Delivered Duty Paid: Seller bears cost, risk and responsibility for cleared goods at named place of destination at buyers disposal. Buyer is responsible for unloading. Seller is responsible for import clearance, duties and taxes so buyer is not “importer of record”.
INCOTERMS DO NOT…
- Determine ownership or transfer title to the goods, nor evoke payment terms.
- Apply to service contracts, nor define contractual rights or obligations (except for delivery) or breach of contract remedies.
- Protect parties from their own risk or loss, nor cover the goods before or after delivery.
- Specify details of the transfer, transport, and delivery of the goods. Container loading is NOT considered packaging, and must be addressed in the sales contract.
Remember, Incoterms are not law and there is NO default Incoterm!
Glossary of Shipping Terms
Bill of Lading (B/L)
title of property of the goods, it is the authentic receipt delivered by
carriers for the said goods shipped/to be shipped on a named vessel
The process of assimilating many small shipments into one large shipment at a central point so that economies of scale may be achieved; to commence discharge of cargo.
Cargo shipped in loose condition and of a homogeneous nature. Cargoes that are shipped unpackaged either dry, such as grain and ore, or liquid, such as petroleum products. Bulk service generally is not provided on a regularly scheduled basis, but rather as needed, on specialized ships, transporting a specific commodity.
There are two types of bulk carriers, the dry-bulk carrier, and the liquid-bulk carrier, better known as a tanker. Bulk cargo is a shipment such as oil, grain, or one which is not packaged, bundled, bottled, or otherwise packed and is loaded without counting or marking.
Bunker Adjustment Factor
An adjustment in shipping charges to offset price fluctuations in the cost of bunker fuel. Also known as a Bunker Surcharge (B/S).
The carriage of goods or passengers for remuneration taken on at one point and discharged at another point within the territory of the same country.
Currency Adjustment Factor
A surcharge on freight charges by a carrier to offset foreign currency fluctuations.
Merchandise/commodities carried by means of transportation.
The act of loading and discharging a cargo ship.
A document containing a full list of the ship's cargo, extracted from the bills of lading.
Any person who, through a contract of carriage, undertakes to perform or procure the performance of carriage by rail, road, sea, air, inland waterway, or by a combination of modes. (See also Common Carrier)
An affiliation of shipowners operating over the same route(s) who agree to charge uniform rates and other terms of carriage. A conference is "closed" if one can enter only by the consent of existing members of the conference. It is "open" if anyone can enter by meeting certain technical and financial standards. Conference members are common carriers.
The receiver of freight shipped by the shipper (consignor) (2) -The individual or company to whom a seller or shipper sends merchandise and who, upon presentation of necessary documents, is recognized as the merchandise owner for the purpose of declaring and paying customs duties.
An open or enclosed structural unit designed for intermodal transport of commodities;
A document containing a full list of the containers cargo.
The specific area in which the containers are held
All substances of an inflammable nature which are liable to spontaneous combustion either in themselves or when stowed adjacent to other substances and, when mixed with air, are liable to generate explosive gases or produce suffocation or poisoning or tainting of foodstuffs.
Liquids that emanate unstable vapors
A common measure of ship carrying capacity.
A fee levied by the shipping company upon the port or supplier for not loading or unloading the vessel by a specified date agreed upon by contract
Merchandise other than liquid carried in bulk.
Delivery or collection services to/from ports of call of large ocean vessels, and arranged on smaller local vessels, barges, rail or road, from/to various places of origin/destinations which could not be served by the larger vessels.
A vessel that connects with a line vessel to service a port not directly served by that line vessel.
Forty-Foot Equivalent Unit (F.E.U.)
Refers to the standard measure of a 40 feet container. A 40 feet container is the equivalent of 2 TEU
Full Container Load (FCL)
Fully loaded container.
Code of minimum conditions for the carriage of cargo under a bill of lading.
Less than Container Load
A consignment of cargo which is inefficient to fill a shipping container. It is grouped with other consignments for the same destination in a container at a container freight station.
A liner is a vessel that engages in transportation, which usually involves the haulage of general cargo as distinct from bulk cargo.
Long Tones (L/T)
Metric Tones (M/T)
Non-vessel-operating Common Carrier (NVOCC)
An cargo consolidator of small shipments in ocean trade, generally soliciting business and arranging for or performing containerization functions at the port.
The loading of cargo in a vessel in such a manner as to provide the utmost safety and efficiency for the ship and the goods it carries.
Twenty Foot Equivalent Unit (T.E.U.)
Twenty Foot Equivalent Unit (containers): A measurement of cargo-carrying capacity on a containership, referring to a common container size of 20 ft in length.
The possible aggressive actions against a ship and its cargo by a belligerent government. This risk can be insured by a marine policy with a risk clause.
Glossary of Air Shipping
AWB (Air Waybill)
The document made out by or on behalf of the shipper which evidences the contract between the shipper and the carrier for carriage of goods over routes of the carrier.
A person or organization authorized to act for or on behalf of another person or organization.
A transport where the recipient is identified as a bank and the real recipient of the goods is mentioned under “notify”; the carrier is obliged to hold on to the goods until the written acceptance of the mentioned bank.
warehouse under customs control where cargo in transit is kept or
where cargo is kept pending customs clearance
A request to reserve cargo space inside an aircraft
Break Bulk Agent
An agent who breaks consolidated consignments into their individual parts.
Anything carried or to be carried in an aircraft except:
- mail or other property carried under the terms of international postal convention
- baggage carried under a passenger ticket.
Cargo Ground Handling Agent
Authorized agent that handles cargo under the carries name.
The actual gross weight or volume weight, whichever is higher, provided that where a lower charge for a higher minimum weight applies, the latter shall be retained as chargeable weight.
The content of a transport.
The person whose name appears on the AWB as the party to whom the goods are the be delivered by the carrier.
The assembling of several loads originating from several sources for joint dispatch.
A person or organization performing a consolidation.
The firm, normally forwarding agent, running a consolidation service
Deterioration of goods that occurred during transportation which devalues or hinders the use of said goods.
A report that’s filled when goods are deteriorated during transportation.
Dangerous Goods/Special Cargo
Goods, which, because of their nature, are classified as hazardous and
admitted for transportation on special terms and regulations
Dangerous Goods Regulation (DRG)
A list of regulations that lists all the dangerous goods and impose detailed conditions under which these goods are to be handled and packed.
A document signed by the recipient that attests that the goods were surrendered to him.
The last location mentioned in the transport.
Length, width and height, measured in cm, used to determine transportation rates and for general information.
A way to indentify the flight
Is a person or company that organizes shipments for individuals or other companies.
Aircraft used exclusively for transporting goods.
Any consignment other than a consignment containing valuable cargo as defined herein and charged for transportation at general cargo rates.
The weight of the shipment including all packing, blocking, etc. Also including weight of platforms, special bracing, etc. , if required.
The handling of goods.
House Air Waybill (HAWB)
The document which covers each individual shipment of a consolidation. It is issued by the consolidator and contains instructions to the break bulk agent
Abbreviation for International Air Transport Association, organization which emits rules and regulations that are to be followed in air transportation.
Letter of Credit (L/C)
A letter addressed by a bank to another bank by which a 3rd party, usually a client, is able to receive the money.
Live Animal Regulation
A IATA publication that states the rules that are to be followed in transporting live animals.
The official list of all the goods on a cargo aircraft.
Master Air Waybill (MAWB)
An Air Waybill covering a consolidated consignment, showing the consolidator as shipper.
The first place of departure mentioned in the transportation contract.
The description for each of the two or more parts of a split export consignment.
The amount charged by the carrier(s) for the carriage of a unit of goods.
The route to be followed as altered from that originally specified in the AWB.
Equivalent to the term “Consignor”, meaning the person whose name appears on the AWB as the party contracting with the carrier(s) for carriage of goods.
A surcharge for the carriage of cargo having a value in excess of a specified amount per kilogram.
The weight of a pallet or container.
The four-digit number assigned by the United Nations Committee of Experts on the Transport of Dangerous Goods to identify a substance considered as aircraft equipment.
Unit Load Device (ULD)
Pallet or container
Valuable cargo (VAL)
Volume measured in metric cubes
The charge for carriage of goods based on their weight.
List of Abbreviations Used in Air Transportation
AWB - Air Waybill
CHC - Handling Airline Charges
CHA – Handling Airline Charges
CCA – Cargo Correction Advice
CASS – Cargo accounts Settlement Systems
FSC – Fuel Surcharge
GCR – General Cargo Rates
SSC – Security Surcharge
SCR – Specific Commodity Rate
SLI - Shipper’s Letter of Instruction
INC – Insurance Charges
CC – Charges Collect
PP – Charges Prepaid
DGR – Dangerous Goods Regulations
IATA – Air ransport Association
L/C – Letter of Credit
LAR – Live Animal Regulation
NCV – No Value Declared for Carriage
NCV – No Customs Valued
POD – Proof of Delivery
TACT – The Air Cargo Tarrif
T/T- Transit Time
VAL – Valuable Cargo
VUL – Vulnerable Cargo
Ocean Container Dimensions
General purpose 20’/40’
High Cube General Purpose 40’
Open Top Container 20’/40’
Flat Rack 20’
Tank Containers 20’
Tank Containers 20’
-For liquid cargo