Introduction
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® 2020beginning 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® 2020is available for purchase on the ICC’s ecommerce platform,ICC Knowledge 2 Goin both print and digital formats.Incoterms® 2020edition mayalso be purchased from theICC local representative.ICC also developed series oflaunch events and training seminars.
Group 1. Incoterms that apply to any mode of transport are:
- EXWEx Works
- FCAFree Carrier
- CPTCarriage Paid To
- CIPCarriage and Insurance Paid To
- DATDelivered at Terminal
- DAPDelivered at Place
- DDPDelivered Duty Paid
Group 2. Incoterms that apply to sea and inland waterway transport only:
- FASFree Alongside Ship
- FOBFree on Board
- CFRCost and Freight
- CIFCost, Insurance, and Freight
- View Incoterms 2010 with Definitions
eCommerce Incoterms
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.
Incoterms Considerations
- When the goods you export arrive at their destination, the importing country requiresthat 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® 2020beginning 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® 2020is available for purchase on the ICC’s ecommerce platform,ICC Knowledge 2 Goin both print and digital formats.Incoterms® 2020edition mayalso be purchased from theICC local representative.ICC also offers series oflaunch events and training seminars.
Prepared by the International Trade Administration. With its network of 108 offices across the United States and in more than 75 countries, the International Trade Administration of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.
