Incoterms 2000

Introduction to Incoterms 2000

While the terms of sale in international business often sound similar to those commonly used in domestic contracts, they often have different meanings. Confusion over these terms can result in a lost sale or a financial loss on a sale. Thus, it is essential that you understand what terms you are agreeing to before you finalize a contract.

Incoterms 2000

By the 1920s, commercial traders had developed a set of trade terms to describe their rights and liabilities with regard to the sale and transport of goods. These trade terms consisted of short abbreviations for lengthy contract provisions. Unfortunately, there was no uniform interpretation of them in all countries, and therefore misunderstandings often arose in cross-border transactions.

To improve this aspect of international trade, the International Chamber of Commerce (ICC) in Paris developed INCOTERMS (INternational COmmercial TERMS), a set of uniform rules for the interpretation of international commercial terms defining the costs, risks, and obligations of buyers and sellers in international transactions. First published in 1936, these rules have been periodically revised to account for changing modes of transport and document delivery. The current version is Incoterms 2000.

Use of Incoterms

Incoterms are not implied into contracts for the sale of goods. If you desire to use Incoterms, you must specifically include them in your contract. Further, your contract should expressly refer to the rules of interpretation as defined in the latest revision of Incoterms, for example, Incoterms 2000, and you should ensure the proper application of the terms by additional contract provisions. Also, Incoterms are not “laws.” In case of a dispute, courts and arbitrators will look at: 1) the sales contract, 2) who has possession of the goods, and 3) what payment, if any, has been made. 

Incoterms Do . . .

Incoterms 2000 may be included in a sales contract if the parties desire the following:

1. To complete a sale of goods.
2. To indicate each contracting party’s costs, risks, and obligations with regard to delivery of the goods as follows:
   1. When is the delivery completed?
   2. How does a party ensure that the other party has met that standard of conduct?
   3. Which party must comply with requisite licenses and government-imposed formalities?
   4. What are the mode and terms of carriage?
   5. What are the delivery terms and what is required as proof of delivery?
   6. When is the risk of loss transferred from the seller to the buyer?
   7. How will transport costs be divided between the parties?
   8. What notices are the parties required to give to each other regarding the transport and transfer of the goods?
3. To establish basic terms of transport and delivery in a short format.

Incoterms Do Not . . .

Incoterms 2000 are not sufficient on their own to express the full intent of the parties. They will not:

1. Apply to contracts for services.

2. Define contractual rights and obligations other than for delivery.

3. Specify details of the transfer, transport, and delivery of the goods.

4. Determine how title to the goods will be transferred.

5. Protect a party from his/her own risk of loss.

6. Cover the goods before or after delivery.

7. Define the remedies for breach of contract.

Tip: Incoterms can be quite useful, but their use has limitations. If you use them incorrectly, your contract may be ambiguous, if not impossible to perform. It is therefore important to understand the scope and purpose of Incoterms—when and why you might use them—before you rely on them to define such important terms as mode of delivery, customs clearance, passage of title, and transfer of risk.

* There are actually two FCA terms: FCA Seller's Premises where the seller is responsible only for loading the goods and not responsible for inland freight; and FCA Named Place (International Carrier) where the seller is responsible for inland freight.

The 13 INCOTERMS

Origin Terms

EXW - Ex-Works, named place where shipment is available to the buyer, not loaded.
The seller will not contract for any transportation.


International Carriage NOT Paid by Seller

FCA - Free Carrier, unloaded at the seller's dock OR a named place where shipment is available to the international carrier or agent, not loaded.
This term can be used for any mode of transport.

FAS - Free Alongside Ship, named ocean port of shipment.
Ocean shipments that are NOT containerized.

FOB - Free On Board vessel, named ocean port of shipment.
This term is used for ocean shipments only where it is important that the goods pass the ship's rail.


International Carriage Paid by the Seller

CFR - Cost and Freight, Named ocean port of destination.
This term is used for ocean shipments that are not containerized.

CIF - Cost, Insurance and Freight, named ocean port of destination.
This term is used for ocean shipments that are not containerized.

CPT - Carriage Paid To, named place or port of destination.
This term is used for air or ocean containerized and roll-on roll-off shipments.

CIP - Carriage and Insurance Paid To, named place or port of destination.
This term is used for air or ocean containerized and roll-on roll-off shipments.


Arrival At Stated Destination

DAF - Delivered At Frontier, named place of destination, by land, not unloaded.
This term is used for any mode of transportation but must be delivered by land.

DES - Delivered Ex-Ship, named port of destination, not unloaded.
This term is used for ocean shipments only.

DEQ - Delivered Ex-Quay, named port of destination, unloaded, not cleared.
This term is used for ocean shipments only.

DDU - Delivered Duty Unpaid, named place of destination, not unloaded, not cleared.
This term is used for any mode of transportation.

DDP - Delivered Duty Paid, named place of destination, not unloaded, cleared.
This term is used for any mode of transportation.