(c) Structure of the Incoterms
Categorisation according to the letter. In Incoterms 2000, a categorisation was made based on the place of delivery. Although this approach has now been abandoned, the categorisation still helps in distinguishing the Incoterms from one another.
The “E”-term (‘departure contracts’) is the term under which the seller’s obligation is at its minimum: the seller has to do no more than place the goods at the disposal of the buyer at the agreed location – usually a distribution centre or the factory or assembler of the seller.
The “F”-terms (‘main carriage unpaid contracts’) require the seller to deliver the goods for carriage as instructed by the buyer. The delivery point under FOB is the same under CFR and CIF.
The “C”-terms (‘main carriage paid contracts’) require the seller to contract for carriage on usual terms at its own expense. Therefore, a point up to which he would have to pay transport costs must necessarily be indicated after the respective “C”-term. Under the CIF and CIP terms, the seller also has to take out insurance and bear the insurance cost. The “C”-terms contain two ‘critical’ points (not one, as opposed to the other Incoterms): one indicating the point to which the seller must arrange and bear the costs of a contract of carriage, and another indicating the point for transfer of the risk. A characteristic of the “C”-terms is that the seller is relieved of any further cost and risk once it has discharged its obligations by contracting for transportation, handing over the goods to the carrier, and, in case of CIF or CIP, by providing for insurance. Accordingly, adding obligations of the seller to the “C”-terms, which extend its responsibility beyond the point of transfer of the risk, requires great caution.
The “D”-terms (‘arrival contracts’) are essentially different from the “C”-terms, because under the “D”-terms the seller is responsible for the arrival of the goods at the agreed place (or at a destination at the border or within the country of import). The seller must bear all costs and risk in bringing the goods there. Hence, the “D”-terms signify arrival contracts, while the “C”-terms denote departure (shipment) contracts.
Categorisation in Incoterms 2010. In Incoterms 2010, the 11 Incoterms are subdivided into two categories based only on method of delivery. The larger group of seven rules applies regardless of the method of transport, but the smaller group of four is applicable only to sales that solely involve transportation over water.
Subdivision from A1 to B10. Each Incoterm is systematically structured, dividing all the elements of delivery into ten numbered entries, each of which is sub-labelled “A” for the seller’s obligations or “B” for the buyer’s obligations. Accordingly, each Incoterm contains the following captions:
A1 – Provision of goods in conformity with the contract
B1 – Payment of the price
A2 & B2 – Licences, authorizations and formalities
A3 & B3 – Contracts of carriage and insurance
A4 – Delivery
B4 – Taking delivery
A5 & B5 – Transfer of risks
A6 & B6 – Division of costs
A7 – Notice to the buyer
B7 – Notice to the seller
A8 & B8 – Proof of delivery, transport document or equivalent electronic message
A9 – Checking – packaging – marking
B9 – Inspection of goods
A10 & B10 – Other obligations
Rules for any mode of transportation. The seven rules defined by Incoterms 2010 for any mode(s) of transportation are:
EXW: Ex works (named place of delivery)
The Ex Works Incoterm is typically used in an initial quotation for the goods without any costs included. The seller makes the goods available at its premises. This term places the maximum obligation on the buyer and minimum obligation on the seller. EXW means that on the agreed date, the seller makes the goods available at its premises (factory, warehouse, plant). To put it simply, the seller opens the doors of its premises. The buyer pays for transportation and bears the risks for taking the goods to their final destination. The seller does not load the goods on collecting vehicles and does not clear them for export. If the seller does load the goods, it does so at the buyer’s risk and cost. If the seller should be responsible for loading the goods on departure and bear the costs and risk of such loading, this must be made explicit in the sales contract.
FCA: Free carrier (named place of delivery)
The seller hands over the goods, cleared for export, putting them at the disposal of the first carrier (named by the buyer) at the named place. The seller pays for carriage to the named point of delivery, and risk passes when the goods are handed over to the first carrier.
CPT: Carriage paid to (named place of destination)
The seller pays for carriage. Risk transfers to the buyer upon handing goods over to the first carrier.
CIP: Carriage and insurance paid to (named place of destination)
CIP is the containerised transport or multimodal equivalent of CIF. The seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.
DAT: Delivered at terminal (named terminal at port or place of destination)
The seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.
DAP: Delivered at place (named place of destination)
The seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.
DDP: Delivered duty paid (named place of destination)
The seller is responsible for delivering the goods to the named place in the country of the buyer, and bears all the costs in bringing the goods to the destination, including import duties and taxes. This Incoterm places the maximum obligation on the seller.
Rules for sea and inland waterway transport
The four rules defined by Incoterms 2010 for international trade where transportation is entirely conducted over water are:
FAS: Free alongside ship (named port of shipment)
The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. FAS is suitable only for maritime transport but not for multimodal sea transport in containers. This term is typically used for heavy-lift or bulk cargo.
FOB: Free on board (named port of shipment)
The seller must load the goods on board the vessel named by the buyer. Cost and risk shift to the buyer once the goods are actually loaded on board the vessel (this clarification is new). The seller must clear the goods for export. The term is applicable for maritime and inland waterway transport only but not for multimodal sea transport in containers. The buyer must instruct the seller as to the details of the vessel and the port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder. This term has been greatly misused over the past three decades, ever since Incoterms 1980 explained that FCA should be used for container shipments.
CFR: Cost and freight (named port of destination)
The seller must pay the costs to transport the goods to the port of destination. The risk transfers to the buyer once the goods are loaded on the vessel (this is a ‘clarification’ of Incoterms 2000). Maritime transport only and insurance for the goods is not included. This term is formerly known as CNF (C&F).
CIF: Cost, insurance and freight (named port of destination)
The term is same as CFR, except that the seller must in addition arrange (and pay) for insurance.
 Since the point for the division of costs is fixed at a point in the country of destination, the “C”-terms are frequently mistakenly believed to be ‘arrival contracts’, in which the seller would bear all risks and costs until the goods have actually arrived at the agreed point. It must be emphasised, however, that the “C”-terms are of the same nature as the “F”-terms: the seller fulfils the contract in the country of shipment or dispatch.