The purpose of INCOTERMS is to provide the framework of international rules for interpretation of most commonly used commercial terms in international trade. As a result different interpretations of such terms in different countries can be avoided or at least greatly reduced.
In order to avoid misunderstandings between the contracting parties and to facilitate their negotiations, the International Chamber of Commerce in Paris adopted in 1936 unified International Rules for the Interpretation of Trade Terms, known as Incoterms (Abbreviated for International Commercial Terms). For each franking, the delivery obligations of the seller and the buyer are described in details on several pages.
The INCOTERMS rules have been subject to several revisions. There are modifications and amendments concerning both the number and names of the positions, as well as their contents: years 1953, 1967, 1976, 1980, 1990, 2000 and 2010. The last edition of the document is „Incoterms-2010“. In Edition 2010 four codes have been discontinued that is DDU, DEQ, DES and DAF. There are two new positions as well – DAT and DAP. As a result the latest edition contains altogether 11 codes.
Starting from 1990 edition, to make things easier, the delivery terms have been grouped by the distribution of obligations between the two parties to the contract as follows:
- Group E – the seller only supplies the merchandise to the seller (usually in his own warehouse);
- Group F – the seller passes the goods to a transporter to be specified by the buyer;
- Group C – the seller provides the carriage without bearing the risk of loss or damage of the goods and/or additional expenses;
- Group D – the seller takes at his expense all costs and risks for delivery of goods to their final destination.
- EXW / EX Works (named place) = franco the factory (place agreed upon)
- FCA / Free Carrier (named place) = franco the transporter (place agreed upon)
- FAS / Free Alongside Ship (named port of shipment) franco alongside the ship (port of shipment agreed upon)
- FOB / Free On Board (named port of shipment) = franco on board (port of shipment agreed upon)
- CFR / Cost and Freight (named port of destination) = cost of goods plus freight (port of destination agreed upon)
- CIF / Cost, Insurance and Freight (named port of destination) = cost, insurance and freight (port of destination agreed upon)
- CPT / Carriage Paid To (named place of destination) = carriage paid to (destination agreed upon)
- CIP / Carriage and Insurance Paid То (named place of destination) = carriage and insurance paid to (destination agreed upon)
- DAP / Delivered at Place (named place of destination) = delivery to a place (destination agreed upon)
- DDP / Delivered Duty Paid (named place of destination) = delivered and duty paid, (destination agreed upon)
- DAT/ Delivered at Terminal(named terminal of destination) = delivered at terminal (terminal of destination agreed upon)