What is an Incoterm?

History and evolution of incoterms

Origin and first publication

Incoterms were first introduced in 1936 by the ICC to eliminate misunderstandings and trade disputes arising from different interpretations of trade terms between countries. Since then, they have been updated several times to adapt to changes in international trade practices and developments in global trade.

Revisions and updates

The most recent revisions include Incoterms 2010 and Incoterms 2020, which reflect the current needs of international trade. Each revision seeks to improve the clarity and relevance of terms, adjusting to new technologies and transport methods.

Types of incoterms

Classification of Incoterms

Incoterms are divided into two main categories: multimodal (applicable to any mode of transport) and maritime (specific to sea and inland waterway transport).

Multimodal Incoterms

1. EXW (Ex Works): The seller delivers the goods to his own premises. The buyer assumes all costs and risks from that point.
2. FCA (Free Carrier): The seller delivers the goods to a carrier nominated by the buyer at an agreed place.
3. CPT (Carriage Paid To): The seller pays for the carriage to the destination, but the risk is transferred to the buyer when the goods are handed over to the carrier.
4. CIP (Carriage and Insurance Paid To): Similar to CPT, but the seller must also take out minimum insurance.
5. DAP (Delivered at Place): The seller bears all costs and risks until the goods arrive at the agreed place.
6. DPU (Delivered at Place Unloaded): The seller bears all costs and risks until the goods arrive and are unloaded at the agreed place.
7. DDP (Delivered Duty Paid): The seller assumes all costs and risks, including duties and taxes, until the goods reach their final destination.

Maritime Incoterms

1. FAS (Free Alongside Ship): The seller delivers the goods alongside the ship at the agreed port of shipment. The buyer bears the costs and risks from that point.
2. FOB (Free On Board): The seller delivers the goods on board the ship at the agreed port of shipment. The buyer bears the costs and risks from that point.
3. CFR (Cost and Freight): The seller pays the cost and freight to the port of destination, but the risk is transferred to the buyer when the goods are on board the ship.
4. CIF (Cost, Insurance and Freight): Similar to CFR, but the seller must also take out minimum insurance.

Importance of Incoterms in international trade

Clarification of responsibilities

Incoterms provide clarity on the responsibilities and risks associated with the transport and delivery of goods, reducing the risk of disputes and misunderstandings between buyers and sellers. In transactions such as the export of vehicles to Algeria, Incoterms are essential to clearly define who is responsible for each stage of the logistics process, from the factory to the final destination.

Global standardisation

These terms standardise business practices, facilitating smoother and more efficient transactions at the international level. Standardisation is particularly crucial in emerging markets and in complex transactions, such as the export of vehicles to countries with strict regulations like Algeria.

Cost and risk reduction

By clearly defining responsibilities and risks, Incoterms help companies avoid unexpected costs and mitigate potential risks during the transport and delivery of goods. This is especially important in the export of high-value goods, such as vehicles.