The Incoterms rules or International Commercial terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) widely used in international commercial transactions. International Commercial Terms, known as “Incoterms”, are internationally accepted terms defining the responsibilities of exporters and importers in the arrangement of shipments and the transfer of liability involved at various stages of the transaction and will become effective January 1, 2011.

On September 16, 2010 the International Chamber of Commerce (ICC) has announced the issuance of revised redaction of Rules for the use of domestic and international trade terms. The Incoterms 2010 terms mirror the modern trends of international trade development, formed from the moment of issuance of the last redaction of Rules in year 2010.

Total quantity of terms was reduced from 13 to 11. Also two were added: Delivered at Place (DAP) and Delivered at Terminal (DAT). Besides that, the new version includes small manual to each term to help the users of Incoterms 2010 Rules choose the right one.

Each term of Incoterms 2010 represents three letter abbreviation. The terms may be divided on 4 groups:

Group E – Departure:
EXW - Ex Works: Seller delivers (without loading) the goods at disposal of buyer at seller's premises. Long held as the most preferable term for those new-to-export because it represents the minimum liability to the seller. On these routed transactions, the buyer has limited obligation to provide export information to the seller.

Group F - Main Carriage Unpaid:
FCA - Free Carrier: Seller delivers the goods to the carrier and may be responsible for clearing the goods for export (filing the EEI). More realistic than EXW because it includes loading at pick-up, which is commonly expected, and sellers are more concerned about export violations.
FAS - Free Alongside Ship: Risk passes to buyer, including payment of all transportation and insurance costs, once delivered alongside the ship (realistically at named port terminal) by the seller. The export clearance obligation rests with the seller.
FOB - Free On Board: Risk passes to buyer, including payment of all transportation and insurance costs, once delivered on board the ship by the seller. A step further than FAS.

Group C - Main Carriage Paid:
CFR - Cost and Freight: Seller delivers goods and risk passes to buyer when on board the vessel. Seller arranges and pays cost and freight to the named destination port. A step further than FOB.
CIF - Cost, Insurance and Freight: Risk passes to buyer when delivered on board the ship. Seller arranges and pays cost, freight and insurance to destination port. Adds insurance costs to CFR.
CPT - Carriage Paid To: Seller delivers goods to the carrier at an agreed place, shifting risk to the buyer, but seller must pay cost of carriage to the named place of destination.
CIP - Carriage and Insurance Paid To: Seller delivers goods to the carrier at an agreed place, shifting risk to the buyer, but seller pays carriage and insurance to the named place of destination.

Group D – Arrival:
DAP - Delivered at Place: Seller bears cost, risk and responsibility for goods until made available to buyer at named place of destination. Seller clears goods for export, not import. DAP replaces DAF, DDU.
DAT - Delivered at Terminal: Seller bears cost, risk and responsibility until goods are unloaded (delivered) at named quay, warehouse, yard, or terminal at destination. Demurrage or detention charges may apply to seller. Seller clears goods for export, not import. DAT replaces DEQ, DES.
DDP - Delivered Duty Paid: Seller bears cost, risk and responsibility for cleared goods at named place of destination at buyers disposal. Buyer is responsible for unloading. Seller is responsible for import clearance, duties and taxes so buyer is not “importer of record”.

Incoterms 2010 11 terms classification.

Eleven terms of Incoterms 2010 may be divided on 2 separate groups:

Rules for Sea and Inland Waterway Transport:

EXW Ex Works
FCA Free Carrier
СРТ Carriage Paid to
СIP Carriage and Insurance Paid to
DAT Delivered at Terminal
DAP Delivered at Place
DDP Delivered Duty Paid

Rules for Sea and Inland Waterway Transport:

FAS Free Alongside Ship
FOB Free on Board
CFR Cost and Freight
CIF Cost Insurance and Freight

How to use the Incoterms 2010

1. By incorporating Incoterms® 2010 in your purchase and sales agreement.

If required to use the Incoterms® 2010, it is necessary to make it clear in your agreement as follows: «[selected term of Incoterms, including the named place, in accordance with] Incoterms® 2010».

2. By choosing the correspond term of Incoterms.

The chosen term of Incoterms should be corresponded to the goods, way of transportation and disclose till what stage the parties are intend to insert additional liabilities, for example, obligations of seller or buyer under the organization of transportation or insurance. The clarification to each term includes the information, useful to make the decision. Whatever term would be selected, the parties should bear in mind that practice of the ports or others points may affect on the construction of their contract.

3. Through an process of identification more exact point or port.

The chosen term of Incoterms is able to work only if the point or port has been identified, or better, if parties identified, ideally, such port or point as accurately as possible.
Good case in point is the following item: "FCA 38 Cours Albert ler, Paris, France Incoterms® 2010".
According to the terms of Incoterms Ex Works (EXW), Free Carrier (FCA), Delivered at Terminal (DAT), Delivered at Place (DAP), Delivered Duty Paid (DDP), Free Alongside Ship (FAS) и Free on Board (FOB) the named point provides the place where the delivery and risk transfer to the buyer could be effected.
According to the terms of Incoterms Carriage Paid То (СРТ), Carriage and Insurance Paid To (CIP), Cost and Freight (CFR) и Cost, Insurance and Freight (CIF) the named point stand out from the place of delivery. In accordance with that four terms of Incoterms, the named place signify the place of destination, till that the transportation will be paid. For avoidance of doubt or controversy mentioning such place, as a point or place of destination, may be further identify mentioning on exact point in that place.

4. You should remember that Incoterms does not present by itself comprehensive purchase and sales agreement.

Incoterms rules just mentioning, which of the parties of purchase and sales agreement must effect all the necessary activities of transportation and insurance, when the seller transfer the goods to buyer and what kind of costs each party bears. Incoterms does not mention on amount due or method of payment. It also does not regiment lapse of rightю on property in goods or consequent effect of breach of the contract. Such questions are usually interpreted in clear cut terms in purchase and sales agreement or in the rights applied to such agreement. The parties should take into account, that mandatory local law may have the advantage in respect of any aspect of purchase and sales agreement, including the chosen term of Incoterms.