The Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law. They are widely used in international commercial transactions or procurement processes and their use is encouraged by trade councils, courts and international lawyers. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the global or international transportation and delivery of goods. Incoterms inform sales contracts defining respective obligations, costs, and risks involved in the delivery of goods from the seller to the buyer, but they do not themselves conclude a contract, determine the price payable, currency or credit terms, govern contract law or define where title to goods transfers. The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from the differing interpretations of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide. “Incoterms” is a registered trademark of the ICC. The first work published by the ICC on international trade.

The seller makes the goods available at their premises, or at another named place. This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used while making an initial quotation for the sale of goods without any costs included. EXW means that a buyer incurs the risks for bringing the goods to their final destination. Either the seller does not load the goods on collecting vehicles and does not clear them for export, or if the seller does load the goods, he does so at buyer’s risk and cost. If the parties agree that the seller should be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale. There is no obligation for the seller to make a contract of carriage, but there is also no obligation for the buyer to arrange one either – the buyer may sell the goods on to their own customer for collection from the original seller’s warehouse. However, in common practice the buyer arranges the collection of the freight from the designated location, and is responsible for clearing the goods through Customs. The buyer is also responsible for completing all the export documentation, although the seller does have an obligation to obtain information and documents at the buyer’s request and cost. These documentary requirements may result in two principal issues. Firstly, the stipulation for the buyer to complete the export declaration can be an issue in certain jurisdictions (not least the European Union) where the customs regulations require the declarant to be either an individual or corporation resident within the jurisdiction. If the buyer is based outside of the customs jurisdiction they will be unable to clear the goods for export, meaning that the goods may be declared in the name of the seller by the buyer, even though the export formalities are the buyer’s responsibility under the EXW term. Secondly, most jurisdictions require companies to provide proof of export for tax purposes. In an EXW shipment, the buyer is under no obligation to provide such proof to the seller, or indeed to even export the goods. In a customs jurisdiction such as the European Union, this would leave the seller liable to a sales tax bill as if the goods were sold to a domestic customer. It is therefore of utmost importance that these matters are discussed with the buyer before the contract is agreed. It may well be that another Incoterm, such as FCA seller’s premises, may be more suitable, since this puts the onus for declaring the goods for export onto the seller, which provides for more control over the export process .

The seller makes the goods available at their premises or another named place. This term places maximum obligations on the buyer and minimum obligations on the seller. The Ex Works (EXW) term is often used in initial quotations for the sale of goods without including costs. Under EXW, the buyer assumes the risks for transporting the goods to their final destination. The seller does not load the goods onto collecting vehicles or clear them for export. If the seller does load the goods, it is at the buyer’s risk and cost.

If the parties agree that the seller should be responsible for loading the goods and bearing the associated risks and costs, this must be explicitly stated in the contract of sale. The seller is not obligated to arrange carriage, nor is the buyer required to do so – the buyer may sell the goods to their own customer for collection from the seller’s warehouse. Typically, the buyer arranges the freight collection and is responsible for clearing the goods through customs. The buyer must complete all export documentation, although the seller must provide information and documents upon the buyer’s request and cost.

These documentary requirements can lead to two main issues. First, in certain jurisdictions, such as the European Union, customs regulations require the declarant to be a resident individual or corporation. If the buyer is outside the customs jurisdiction, they cannot clear the goods for export, potentially leading to the goods being declared in the seller’s name. Second, most jurisdictions require proof of export for tax purposes. In an EXW shipment, the buyer is not obligated to provide such proof to the seller or even to export the goods. This could leave the seller liable for sales tax as if the goods were sold domestically. It is crucial to discuss these matters with the buyer before finalizing the contract. Another Incoterm, such as FCA (Free Carrier) at the seller’s premises, may be more suitable, as it places the responsibility for export declaration on the seller, providing more control over the export process.

Under Ex Works (EXW) terms, the seller makes goods available at their premises or another specified location, placing maximum obligations on the buyer and minimum obligations on the seller. The buyer assumes all risks and costs for transporting the goods to their final destination. The seller does not load the goods onto the collecting vehicle or clear them for export. If loading is performed by the seller, it is at the buyer’s risk and expense.

If the seller is to be responsible for loading, this must be explicitly stated in the contract. Typically, the buyer arranges freight collection and is responsible for customs clearance, including all export documentation, with the seller providing necessary information upon request.

Two main issues can arise under EXW:

1. In jurisdictions like the EU, the declarant for customs must be a resident. If the buyer is outside the jurisdiction, the goods may need to be declared in the seller’s name.
2. Proof of export is required for tax purposes, and in an EXW shipment, the buyer is not obligated to provide this proof, potentially leaving the seller liable for sales tax as if the goods were sold domestically.

Discussing these matters with the buyer before finalizing the contract is crucial. Alternatively, using another Incoterm, such as FCA (Free Carrier), where the seller is responsible for export declaration, might be more appropriate, giving the seller more control over the export process.

Under FOB terms, the seller bears all costs and risks until the goods are loaded onto the vessel. The seller’s responsibility does not end at that point unless the goods are “appropriated to the contract,” meaning they are clearly set aside or otherwise identified as the contract goods. Therefore, an FOB contract requires the seller to deliver the goods on board a vessel designated by the buyer in a customary manner at the particular port. The seller must also arrange for export clearance.

On the other hand, the buyer is responsible for the costs of marine freight transportation, bill of lading fees, insurance, unloading, and transportation from the arrival port to the final destination. Since the Incoterms 1980 introduced the Incoterm FCA, FOB should only be used for non-containerized sea freight and inland waterway transport. However, FOB is commonly used incorrectly for all modes of transport, despite the contractual risks this can introduce. In some common law countries, such as the United States, FOB is not only connected with the carriage of goods by sea but also used for inland carriage aboard any “vessel, car, or other vehicle.”

CY (Container Yard): A container terminal where containers are stored before or after their shipment. The cost of transportation includes services for moving goods to and from the CY, such as freight, loading/unloading from the vessel, and placement in the CY. It does not include underwriting services or shipments to/from the CY.

Free In (FI): In international ocean freight terminology, “Free” means “Not included.” Thus, if FI is specified, the shipper is responsible for the cost of loading goods onto a vessel for international shipping.

Free Out (FO): This term indicates that the consignee (recipient) is responsible for the cost of unloading cargo from the vessel at the destination.

Free In and Out (FIO): This term means that the carrier is not responsible for the cost of loading and unloading goods onto/from the vessel.

Liner Terms (LI/LO): A freight rate qualification indicating that it includes the ocean carriage and the cost of cargo handling at the loading and discharging ports according to local customs. This can vary widely between countries and ports; in some, freight excludes all cargo handling costs, while in others, it includes handling between the hold and the ship’s rail or quay.

Free into Store (FIS): An unofficial trade term indicating that the seller’s price includes all costs up to delivery to the buyer.

Door to Door: A service or freight rate provided by a container shipping line where goods are loaded into a container at the shipper’s premises and not unloaded until they arrive at the consignee’s premises.

Free Carrier (FCA): A combined transport incoterm replacing FOB when container transport is involved, applicable to all modes of transport.

Important: Information about delivery conditions always includes the cost of cargo handling at the loading and discharging ports, such as FILO (Free In, Liner Out) and LIFI (Liner In, Free Out).