Introduction to Incoterms

INCOTERMS, an abbreviation for International Commercial terms, are a set of three-letter standard trade terms most commonly used in international contracts for the sale of goods. Incoterms are widely used in international and domestic commercial transactions, therefore it is essential that you are aware of these terms of trade prior to shipment. Which terms you and your seller/buyer agree upon will define the responsibilities each party has for the delivery of goods under sales contracts.

To help our clients fully understand the meaning of the various Incoterms, we created a series of blog posts to provide examples of the most commonly used terms in trade, and explore how they affect your obligations regarding your shipments.

The most recent version of Incoterms, Incoterms 2010, became effective January 1, 2011. They are separated into two groups and organized by mode of transport. Knowing these terms of sale will help you avoid any misunderstanding when preparing sales contracts and will clearly outline your obligations versus your buyer or seller’s obligations. When negotiating with your buyer or seller, pay close attention to when responsibility for certain transportation costs and risk of damage or loss passes from one party to the next. Incoterms are intended to reduce or remove altogether uncertainties arising from different interpretations of the rules in different countries.

Incoterms® consists of a total of 11 trade terms, which are divided into two groups.

Group 1 consists of terms that can be used for any mode of transportation:

• 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 consists of terms 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

Please check out our CrossDock archive for more information about each Incoterm.

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