by INCO terms, short for International Commercial Terms, are a set of standardized trade terms developed by the International Chamber of Commerce (ICC) that are widely used in international trade transactions to clarify the responsibilities and obligations of buyers and sellers in terms of the delivery, insurance, and payment of goods. The current version of INCO terms is INCO terms 2020, which came into effect on January 1, 2020.
INCO terms help to minimize misunderstandings and disputes between buyers and sellers by providing a clear understanding of each party’s obligations and responsibilities. It is important for exporters and importers to clearly specify the INCO terms in their sales contracts to avoid any confusion and ensure a smooth transaction.
INCO terms are divided into 11 groups, each represented by a three-letter acronym that defines the key responsibilities of the buyer and seller. These groups are:
- EXW (Ex Works): The seller delivers the goods at their premises, and the buyer is responsible for all transportation costs and risks.
- FCA (Free Carrier): The seller delivers the goods to a carrier specified by the buyer at a named place, and the buyer is responsible for all transportation costs and risks from that point.
- FAS (Free Alongside Ship): The seller delivers the goods to a port specified by the buyer, and the goods are placed alongside the ship for loading. The buyer is responsible for all transportation costs and risks from that point.
- FOB (Free on Board): The seller delivers the goods on board the ship at a port specified by the buyer, and the buyer is responsible for all transportation costs and risks from that point.
- CFR (Cost and Freight): The seller is responsible for delivering the goods on board the ship at a port specified by the buyer and paying the cost of freight to the destination port. The buyer is responsible for all other transportation costs and risks from that point.
- CIF (Cost, Insurance and Freight): The seller is responsible for delivering the goods on board the ship at a port specified by the buyer and paying the cost of freight and insurance to the destination port. The buyer is responsible for all other transportation costs and risks from that point.
- CPT (Carriage Paid To): The seller delivers the goods to a carrier specified by the buyer at a named place, and pays the transportation costs to the destination point. The buyer is responsible for all other transportation costs and risks from that point.
- CIP (Carriage and Insurance Paid To): The seller delivers the goods to a carrier specified by the buyer at a named place, and pays the transportation costs and insurance to the destination point. The buyer is responsible for all other transportation costs and risks from that point.
- DAP (Delivered at Place): The seller delivers the goods to a named place specified by the buyer, and is responsible for all transportation costs and risks until the goods are delivered at that place.
- DPU (Delivered at Place Unloaded): The seller delivers the goods to a named place specified by the buyer, and is responsible for all transportation costs and risks until the goods are unloaded at that place.
- DDP (Delivered Duty Paid): The seller delivers the goods to a named place specified by the buyer, and is responsible for all transportation costs and risks, as well as paying any applicable duties and taxes.
Features of INCO Terms:
- Standardization: INCO Terms provide a standardized set of rules and guidelines for international trade, which helps to reduce confusion and minimize misunderstandings between trading partners.
- Clear responsibilities: Each INCO Term defines the responsibilities of both the buyer and the seller in terms of transportation, delivery, insurance, and customs clearance, providing clarity and reducing the risk of disputes.
- Universally recognized: INCO Terms are recognized and used by traders and shippers worldwide, which means that they can be easily understood and applied in any international transaction.
Benefits of INCO Terms:
- Helps to minimize risks: INCO Terms help to minimize the risks associated with international trade by providing clear guidelines for the allocation of responsibilities and costs between the buyer and the seller.
- Simplifies negotiations: By using INCO Terms, buyers and sellers can negotiate the terms of the transaction more easily and quickly, as they have a clear understanding of the responsibilities of each party.
- Reduces disputes: INCO Terms help to reduce disputes between buyers and sellers by providing a clear framework for the terms of the transaction, which minimizes misunderstandings and disagreements.
- Enables accurate pricing: INCO Terms enable accurate pricing by providing a standardized framework for the allocation of costs and responsibilities, which helps to ensure that prices are fair and transparent.
- Provides legal certainty: By using INCO Terms, buyers and sellers can ensure that their transaction is legally enforceable and complies with international trade regulations.
