Incoterms - A guide for international trade

The Incoterms, or International Commercial Terms, are a set of internationally recognized trade terms that define the rights and obligations of buyers and sellers in the international trade of goods. The International Chamber of Commerce (ICC) developed these Incoterms to ensure clarity and uniformity in commercial transactions and to avoid misunderstandings.

The Incoterms define who is responsible for the costs and risks during the transportation of goods and up to what point in the transportation process these responsibilities change. It is important to clearly define the relevant Incoterms in a commercial contract in order to ensure smooth and transparent processing.

Here are some of the most important Incoterms with examples:

EXW (Ex Works):

  • The seller makes the goods available at his own location.
  • All costs and risks are transferred to the buyer as soon as the goods are made available at the agreed location.
  • Example: EXW factory [seller] - importer [buyer].

FOB (Free On Board):

  • The seller bears the costs up to the port of shipment and assumes responsibility for the cargo on board the ship.
  • All other costs and risks are transferred to the buyer.
  • Example: FOB port [seller] - importer [buyer].

CIF (Cost, Insurance and Freight):

  • The seller bears the costs for insurance, freight and delivery to the named port of destination.
  • The buyer bears the costs after arrival of the goods at the port of destination.
  • Example: CIF port [seller] - importer [buyer].

DDP (Delivered Duty Paid):

  • The seller bears all costs and risks, including customs duties, until delivery to the agreed place in the importing country.
  • Example: DDP warehouse [seller] - importer [buyer].

It is crucial to understand the specific requirements and risks of each Incoterm and to define them carefully in the commercial contracts. The selection of the appropriate Incoterm depends on factors such as means of transportation, risk tolerance and logistical requirements. Clearly defining the Incoterms will enable the smooth processing of international trade transactions.

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