INCOTERMS

TEXT I

INTERNATIONAL COMMERCIAL TERMS

Before reading the text check the meaning of the Key Words
in the dictionary.

Nouns: terms, transaction, agreement, interpretation, liability,

trade, item, invoice, sales
Verbs: to publish, to accept, to define, to refer to, to arise from to
deal with, to determine, to specify, to vary, to revise, to keep up
with, to update, to occur

The Incoterms (International Commercial Terms) are pre-

defined commercial terms published by the International
Chamber of Commerce (ICC). Three-letter standard trade terms
(e.g. FOB, CFR, CIF) are commonly used in international
commercial transactions for the sale of goods. The Incoterms
rules are intended to communicate the respective obligations
tasks, costs, and risks that are associated with the transportation
and delivery of goods. They define the trade contract liabilities
between the buyer and the seller (the supplier and the consumer).
Each Incoterm refers to a particular type of agreement for
the purchase and shipping of goods internationally.
The Incoterms rules are accepted by governments, legal
authorities, and practitioners worldwide. They are intended to
reduce or eliminate uncertainties that arise from different
interpretation of the rules in different countries.
The Incoterms also deal with the documentation required for
global trade; they specify which parties are responsible for which
documents, since requirements vary much between countries.
 Two items, however, are standard: the Commercial Invoice and
Packing List. Their purpose is to divide transaction costs and
responsibilities between buyer and seller.
The Incoterms were first published in 1936; they are reviewed
periodically to keep up with changes in the international trade
needs. The Incoterms were revised in 1953, 1967, 1976, 1980,
1990, 2000, bringing some changes to a few terms. The latest
version of Incoterms, Incoterms® 2010, was launched in September
2010. The Incoterms are most frequently classified by category.
The Incoterms beginning with F refer to shipments where the
primary cost of shipping is not paid for by the seller. The Incoterms
beginning with C deal with shipments where the seller pays for
shipping. E-terms occur when a seller’s responsibilities are fulfilled
when goods are ready to depart from their facilities. D-terms cover
shipments where the shipper/seller’s responsibility ends when the
goods arrive at some specific point.

UNDERSTANDING THE MAIN POINTS

1. Review questions.
1. What does the term “Incoterms” imply?
2. What are the Incoterms commonly used for?
3. What do they define?
4. What does each Incoterm refer to?
5. What is the purpose of the Commercial Invoice and
Packing List?
6. What does ICC stand for?
7. How can the Incoterms be categorized?
8. What does the Incoterms beginning with F refer to?
9. What do the Incoterms beginning with C deal with?
10. What do D-terms cover?
2. Number the following ideas on the order they appear in
the text.

1. The Incoterms were first published in 1936.

2. Each Incoterm refers to a type of agreement for
the purchase and shipping of goods internationally.
3. Three-letter standard trade terms are commonly used in
international commercial transactions for the sale of
goods.
4. The Incoterms are revised periodically to keep up with
changes in the international trade needs.
5. The Incoterms rules are accepted by governments, legal
authorities, and practitioners worldwide.
6. The Incoterms rules are intended to communicate the
respective obligations tasks, costs, and risks that are
associated with the transportation and delivery of
goods.
7. The Incoterms define the trade contract liabilities
between the buyer and the seller.
8. The Incoterms are intended to reduce or eliminate
uncertainties that arise from different interpretation of
the rules in different countries.
9. The Incoterms also deal with the documentation required
for global trade.
10. The Incoterms are most frequently classified by category.
11. The Incoterms beginning with F refer to shipments where
the primary cost of shipping is not paid for by the seller.
12. Two items are standard: the Commercial Invoice and
Packing List.
 TEXT II

CALASSIFICATION OF INCOTERMS

Before reading the text check the meaning of the Key Words
in the dictionary.

Nouns: premises, insurance, quay, duties, taxes, costs, risks, loss,

damage, arrangement, voyage, frontier, courier
Verbs: to bring, to arrive, to pay, to export, to import, to place, to
clear, to pass, to cause, to insure, to engage, to shift, to undertake

1) Group E – Departure
EXW – Ex Works (followed by a named place, for instance, EXW
Seattle) places the minimum responsibility on the seller with greater
responsibility on the buyer. Ex means “from”; Works means
“factory, mill or warehouse”. The buyer is responsible for loading
the goods on truck or container at the seller’s premises, and for
the subsequent costs and risks.

2) Group F – Main Carriage Unpaid (by the seller)

FCA – Free Carrier (followed by the named place of departure).
The seller delivers the goods, which are cleared for export, to the
carrier nominated by the buyer at the named place. The buyer’s
responsibility for insurance and transportation begins at the
same moment.
FAS – Free alongside Ship (followed by a named port of shipment).
The seller is responsible for the cost of transporting and delivering
goods alongside a vessel in a port in his country. FAS should be
used only for ocean shipments, since risk and responsibility shift
from the seller to the buyer, when the goods are placed within
the reach of the ship’s crane.

FOB – Free on Board (followed by the named port of shipment).

The goods are placed on board the ship by the seller at a port
of shipment named in the sales agreement. The risk of loss of or
damage to the goods is transferred to the buyer, when the goods
pass the ship’s rail. The seller pays the cost of loading the
goods. The buyer is responsible for the cargo insurance and other
costs and risks. The term FOB is used for ocean freight only, but
in practice, many importers and exporters still use the term FOB
in the air freight.

3) Group C – Main Carriage Paid (by the seller)

CFR – Cost and Freight (followed by the name port of destination).
CFR requires the seller to pay the costs and freight necessary to
bring the goods to the named destination, but the risk of loss or
damage to the goods (as well as any cost increases) are transferred
from the seller to the buyer, when the goods pass the ship’s rail
in the port of shipment. Insurance is the buyer’s responsibility.
The term CFR is used for ocean freight only, but in practice,
the term CFR is still commonly used in the air freight.
CIF – Cost, Insurance and Freight (followed by the name port of
destination). It is similar to CFR, but instead of the buyer insuring
the goods for the maritime period of the voyage, the shipper/seller
will insure the merchandise. The seller must pay the costs and freight
necessary to bring the goods to the named port of destination, but
the risk of loss of or damage to the goods, and additional costs are
transferred from the seller to the buyer. This term can be used only
for sea and inland waterway transport.
CPT – Carriage Paid To (followed by a named place of
destination). The seller must pay the freight for the carriage of the
merchandise to the named destination. The risk of loss or
damage to the goods and any cost increases are transferred from
the seller to the buyer, at the point where the goods are taken
in charge by a carrier.
CIP – Carriage and Insurance Paid To (followed by a named place of
destination). CIP is similar to CPT, but in addition, the seller pays
for the insurance against loss or damage. The buyer undertakes the
import customs clearance, payment of customs duties and taxes,
and other costs and risks. This term is primarily used for
multimodal transport.
4) Group D – Arrival
DAF – Delivered at Frontier (followed by a named place). The
seller’s responsibility (import customs clearance, payment of
customs duties and taxes, and other costs and risks) is complete,
when the goods have arrived at the frontier. The buyer is
responsible for the cost of the goods to clear customs. This term can
be used when the goods are transported by rail and road.
DES – Delivered Ex Ship (followed by a named port of destination).
The seller’s responsibility is to get the goods to the port
of destination or to engage the forwarder to move cargo to the port
of destination.
DEQ – Delivered Ex Quay /ki:/ (followed by a named port of
destination). The buyer is responsible for duties and charges and the
seller is responsible for delivering the goods to port of destination.
The buyer must also arrange for customs clearance. The buyer
undertakes the cargo insurance and other costs and risks.
DDP – Delivered Duty Paid (followed by a name of destination).
The shipper/seller is responsible for dealing with all the tasks
involved in moving goods from the manufacturing plant to the
buyer’s door. The shipper/seller’s responsibility is to insure
the goods and cover all costs and risks including the payment of
duty and fees. The buyer pays the duty and any additional costs,
which are caused by the failure to clear the goods for import in
time. DDP terms tend to be used in intermodal or courier-type
shipments.
DDU – Delivered Duty Unpaid (followed by a named place of
destination). This arrangement is basically the same as with DDP,
except for the fact that the buyer is responsible for the duty, fees
and taxes. The seller has to bear the costs and risks involved
in bringing the merchandise in the country of destination. The
buyer pays the duty and any additional costs caused by its failure to
clear the goods for import in time. This term may be used
irrespective of the mode of transport.
 UNDERSTANDING THE MAIN POINTS

1. Review questions.

1. What groups are the Incoterms divided into?

2. What Incoterms place the minimum responsibility on
the seller?
3. What Incoterms can be used for ocean freight?
4. What Incoterms can be used for air freight?
5. What Incoterms can be used in intermodal or courier-type
shipments?
6. What Incoterms can be used irrespective of the mode of
transport?
7. What Incoterms can be used when the goods are transported
by rail and road?
8. What Incoterms can be used only for sea and inland
waterway transport?
9. What Incoterms can be used for multimodal transport?

2. Decide if the following statements are true or false.

1. The Incoterms are divided into 3 groups.

2. EXW places the maximum responsibility on the seller.
3. Ex means “from”; Works means “factory, mill or
warehouse”.
4. FCA means that the seller delivers the goods, which are
cleared for export, to the carrier nominated by the buyer at
the named place.
5. FAS means that the buyer is responsible for the cost
of transporting and delivering goods alongside a vessel in
a port in his country.
6. The term FOB is used for air freight only.
7. In practice, many importers and exporters use the term FAS
in the ocean freight.
8. The term CFR stands for Cost and Freight.
9. CFR requires the buyer to pay the costs and freight
necessary to bring the goods to the named destination
10. The term CFR is still commonly used in the ocean freight.
11. CIF stands for Cost, Inventory and Freight.
12. CIF is similar to CFR.
13. The term CIF can be used only for sea and inland waterway
transport.
14. CIP has the same meaning as CPT, but in addition,
the seller pays for the insurance against loss or damage.
15. DAF means that the seller’s responsibility is complete,
when the goods have arrived at the frontier.
16. DAF stands for Delivered at Factory.
17. DES means that the seller’s responsibility is to get
the goods to the port of destination or to engage
the forwarder to move cargo to the port of destination.
18. DEQ means that the buyer must arrange for customs
clearance.
19. DEQ also means that the buyer undertakes the cargo
insurance and other costs and risks.
20. DDP terms tend to be used in intermodal or courier-type
shipments.
21. DDU arrangement is basically the same as with DES.
22. The term DEQ may be used irrespective of the mode of
transport.
 EXERCISES

Exercise 1

Translate the following word combinations.

To define the trade contract responsibilities and liabilities, to agree
on a commercial term, to be used in international commercial
transactions, to be responsible for the freight and cargo insurance,
to be used throughout the world, to make international trade easier,
to deal with various documentation, to vary much between
countries, to keep up with.

Exercise 2
Make up sentences with the word combinations from Exercise 1.

Exercise 3
For nouns in column B find suitable attributes in column A.

A B

1. courier-type a) invoice
2. international b) insurance
3. commercial c) list
4. packing d) costs
5. additional e) freight
6. ocean f) responsibilities
7. main g) trade
8. cargo h) shipments
Exercise 4
Write full terms for the following abbreviations.

A B

FCA

CIF

FOB

CRF

DES

DEQ

DDP

CIP

FSA

EXW

DAF

CPT

Exercise 5
Complete the passage below with the words from the box below.

standard version terms risks rules contracts sale

The Incoterms® rules are an internationally recognized standard
and are used worldwide in international and domestic contracts for
the 1) of goods. First published in 1936, Incoterms® rules
provide internationally accepted definitions and rules of
interpretation for most common commercial 2)____________.
The rules have been developed and maintained by experts and
practitioners brought together by ICC and have become
the 3) in international business rules setting. They
help traders avoid costly misunderstandings by clarifying the tasks,
costs and 4) involved in the delivery of goods from
sellers to buyers. All 5) made under Incoterms ® 2000
remain valid even after 2011. Moreover, although experts
recommend using Incoterms® 2010 after 2011, parties to a contract
for the sale of goods can agree to choose any version of the
Incoterms 6) after 2011. It is important however to
clearly specify the chosen version Incoterms ® 2010, Incoterms ®
2000 or any earlier 7) .

Exercise 6
Read and translate the text below. Retell the text.

Main features of the Incoterms ® 2010 rules

Two new Incoterms rules – DAT and DAP – have replaced

the Incoterms 2000 rules DAF, DES, DEQ and DDU.
The number of Incoterms ® rules has been reduced from
13 to 11. This has been achieved by substituting two new rules that
may be used irrespective of the agreed mode of transport – DAT,
Delivered at Terminal, and DAP, Delivered at Place – for the
Incoterms® 2000 rules DAF, DES, DEQ and DDU. Under both
new rules, delivery occurs at a named destination: in DAT,
at the buyer’s disposal unloaded from the arriving vehicle (as under
the former DEQ rule); in DAP, likewise at the buyer’s disposal, but
ready for unloading (as under the former DAF, DES and DDU
rules).
 The new rules make the Incoterms® 2000 rules DES and DEQ superfluous. The
named terminal in DAT may well be in a port, and DAT can therefore safely be used
in cases where the Incoterms® 2000 rule DEQ once was. Similarly, the arriving
“vehicle” under DAP may well be a ship, and the named place of destination may well
be a port. Consequently, DAP can safely be used in cases where the Incoterms® 2000
rule DES once was used. These new rules, like their predecessors, are “delivered”,
with the seller bearing all the costs (other than those related to import clearance, where
applicable) and risks involved in bringing the goods to the named place of destination.

Exercise 7
Complete the passage below with the following prepositions: with, by, on, in (2), of
(2), from, to, for.

The new Incoterms® ® 2010 became effective 1) the 1st of January,

2011. Incoterms® – which is an abbreviation
2) International Commercial terms – are a series of sales terms. They are
published 3) the International Chamber of Commerce (ICC) and are widely
used 4) commercial transactions. In addition to providing a set 5) rules
for the interpretation of commonly used trade terms, Incoterms® ® 2010
accomplish the following: (a) significantly revises Group D listed in Incoterms® ®
2000; (b) reduce Incoterms
6) four groups to two groups, allowing trade experts to choose the most
suitable rule related to the mode of transport; and
(c) reduce the absolute number of Incoterms® from 13 7) 11. Moreover,
Incoterms® ® 2010 offer additional guidance, which assists users 8) selecting the
most appropriate Incoterm for each transaction. The revised terms also spell out rules
regarding the use 9) electronic
procedures; detail information on security-related clearances for shipments;
and offer advice
10) respect to domestic trade.