What Are Incoterms?

What Are Incoterms?

International commerce terms, more commonly known as Incoterms, are a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. These terms are published by the International Chamber of Commerce, and are used to help traders avoid costly misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers.

Coming into full effect on January 1, 2011, there are two (2) main changes to Incoterms 2010 from the 2000 publication. Instead of 13 Incoterms, there are only 11, with two (2) new additions (DAP and DAT) and four (4) deletions (DAF, DDU, DEQ and DES). In contrast to the previous four classes, E,F,C and D, Incoterms will now be separated into 2 groups; those applicable to all modes of transport and those only applicable to maritime transport.

Incoterms 2010 also takes into account the importance of cargo security, as well as the 2004 revision of the United States' Uniform Commercial Code, which resulted in a deletion of the former U.S. shipment and delivery terms. The revised Incoterms rules also reflect the adoption in 2009 by insurance markets of the revised Institute Cargo Clauses (LMA/IUA) (2009).

Video | Drop Shipping Part 2 | Using Incoterms® To Your Benefit

The 11 Rules Are:

Any Mode Of Transportation Other Than Maritime:

EXW Ex Works (named place)

FCA Free Carrier (named places)

CPT Carriage Paid To (named place of destination)

CIP Carriage And Insurance Paid To (named place of destination)

DAT Delivered At Terminal (named destination place)

DAP Delivered At Place (named destination place)

DDP Delivered Duty Paid (named destination place)

Maritime Transportation:

FAS Free Alongside Ship (named loading port)

FOB Free On Board (named loading port)

CFR Cost And Freight (named destination port)

CIF Cost, Insurance and Freight (named destination port)

To a customs broker the correct usage of these terms on shipment documentation can identify the Importer of Record and potential deductions to the declared value for duty.

Is your organization comfortable using Incoterms? If so, what do you find are some of the benefits and drawbacks of using them?

Seminar: How To Choose The Best Incoterm
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About Author
Taryn Hannah

Taryn Hannah is General Manager for PCB Canadian Operations, directly overseeing the Release, Trade Compliance, and Office Administration teams. Taryn has been a trade professional since 2005, specializing in strategic and operational process building and management. She began her career with PCB in release operations, which built a strong foundation in many entry modes. In 2010 Taryn became the Supervisor of our Trade Compliance Group, working with staff and clients to understand regulatory documentation, labeling, data, and timing requirements for all imports into Canada. Over the years, she has become an expert in Participating in Government Agency dealings and has been called upon to speak at events such as Vancouver Fashion Week and various customized courses for industry and associations. Taryn has been recognized for her expert knowledge by receiving the designations of Customs Compliance Specialist (CCS) and Certified Trade Compliance Specialist (CTCS) from the Canadian Society of Customs Brokers.

While we strive for accuracy in all our communications, as the Importer of Record it is incumbent upon your company to ensure that you are aware of the requirements under the new regulations so that you maintain compliance as always.