Incoterms: What are they and why are they necessary?

Incoterms: What are they and why are they necessary?


The word INCOTERMS is the abbreviation of “international commercial terms”, a key element that marks the regulations around international trade.

International logistics requires a series of transactions, insurance and official documents that are indispensable for any type of commercial operation, both import and export.

What are incoterms?

The incoterms were created in 1936 by the International Chamber of Commerce (ICC), in response to the need to standardise and determine what transactions and costs exist in each international commercial transaction. There are a total of 11 and each of them consists of three letters, which define the costs and the risk that seller and buyer entail in each operation.

The last revision of the incoterms was in 2010. It is also possible to find an older reference so it is essential to reflect, in addition to the three letters, the year to which the reference belongs. We must take into account according to the latest developments of the ICC that by 2020 these agreements will be updated to redefine the responsibilities of buyers and sellers in the framework of international trade. In principle, information regarding new incoterms will be available globally in September 2019, hence the relevance of this post.

Although the incoterms are not of obligatory use and compliance, they have been historically accepted in all corners of the world to ensure that there are no misunderstandings.

The incoterms regulate four key points in international commercial operations: the type of delivery of the merchandise (direct to the buyer or indirect, that is, when it reaches an intermediary operator), the responsibility for the risks (claims, insurance etc.), the responsibility for expenses (who pays what) and customs procedures (in charge of who runs).

Incoterms 2010: Groups and their regulations

Today, there are a total of 11 incoterms, which are divided into 4 large groups: E, F, C and D. Next, we detail each of them.

Group E

  • EXW (Ex Works or factory): the seller delivers the goods to the buyer at its facilities, so, from that moment, the buyer must take care of absolutely all the expenses that have to do with the transfer of the same. It is one of the most common incoterms.

Group F

  • FAS (Free Alongside Ship or free next to the ship): the seller delivers the merchandise at a pier or port specified by both parties and deals with customs costs and procedures. From that moment, the rest belongs to the buyer.
  • FOB (Free On Board or free on board): the seller delivers the merchandise at the port and also takes it on board, also taking care of customs costs and procedures. The buyer should take care of everything else. It is usually used in maritime transport.
  • FCA (Free Carrier or free carrier): the seller must deliver the merchandise in his country, in a place (port, airport, station, warehouse etc.) agreed with the buyer, as well as take care of customs procedures. The buyer will take care of the rest.

Group C

  • CFR (Cost and Freight or cost and freight): all transport costs are borne by the seller from the origin to the defined place of destination. Of course, the risk of the merchandise during the boat transfer will depend on the buyer. It is only used in maritime transport.
  • CIF (Cost, Insurance and Freight or cost, insurance and freight): it is the same as the previous one, but the cost of insurance of the merchandise corresponds to the seller. It is usually used in maritime transport.
  • CPT (Carriage Paid To or transport paid up to): the seller pays all transport and insurance costs to the point of delivery of the merchandise, defined by the buyer, but the risk corresponds to the buyer once the merchandise is already in the country of destiny. It can be used with any means of transport.
  • CIP (Carriage and Insurance Paid or transport and insurance paid up to): unlike the previous one, the cost of insurance corresponds to the seller to the place of destination and the beneficiary of the insurance will always be the buyer. It can be used with any means of transport.

Group D

  • DAT (Delivered At Terminal or delivery to the terminal): all expenses, risks and procedures of the merchandise are paid by the seller until it is unloaded at the terminal (port, airport, etc.) agreed with the buyer. Once at that point, the rest corresponds to the buyer. It can be used with any means of transport.
  • DAP (Delivered At Place or one-point delivery): the seller assumes the expenses and risks up to the point of delivery agreed with the buyer, but not those related to the importation of the merchandise, which are borne by the buyer.
  • DDP (Delivered Duty Paid or delivery with paid rights): the seller acquires full responsibility for expenses, procedures and insurance, until the goods finally reach the buyer, who only takes care of the unloading of the merchandise at the agreed point with the seller.

We hope we have been able to help you better understand the world of international trade and how it is regulated. But, if you have any questions or need guidance, do not hesitate to contact us on +353 1 858 0000 and speak to one of our team.