Incoterms explained quickly - What are International Commercial Terms?

Since January 1, 2020, the eighth version of the International Commercial Terms (also INCO Terms or Incotermscalled) are valid. As international import-export professionals, we at KTB Hamburg know how important a certain Basic understanding of the Incoterm rules for international communication in the trade. We have summarized everything you need to know about INCO terms for manufacturers and distributors to make MRO parts procurement for industrial spare parts as easy as possible.

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Consensus for International Trade: A Brief Definition of Incoterms

  • The International Commercial Terms are an internationally valid set of rules for the interpretation of commercial clauses. This makes it quick and easy to agree on transport costs, risk handling and business transaction obligations.
  • The INCO terms have been used since 1936 by the International Chamber of Commerce ICC Paris set. 
  • Applicable INCO-Terms regulations are specified via a three-digit abbreviation in the purchase agreement. 

The INCO terms abbreviations and their meaning

Individual clauses within the International Commercial Terms regulation shall be clearly indicated in the purchase contract: The wording "Incoterms ® 2020 _ Abbreviation" makes it unequivocally clear that the clauses specified refer to the current INCO-Term regulations of 2020. All common abbreviations for industrial spare parts procurement by trading companies and for international MRO supply chain management can be found here:

Important delivery conditions for the import-export industry 

EXW"Ex Works" (Ex works)"Ex works" means that the seller makes the goods available at a named place as soon as they have been manufactured. The pick-up clause does not oblige the seller to load the goods on pallets or to clear them for export.
FCA"Free carrier" (Free Carrier)This clause states that the seller delivers the goods to the carrier or to another place defined in the purchase contract. In this case, the goods must be cleared at the named place; any risks are transferred to the buyer at this point.
CPT"Freight prepaid"(Carriage paid to)Freight paid means that the seller is responsible for organizing and financing the transport. The place of delivery to the carrier is specified in the contract.
CIP"Freight insured"(Carriage and Insurance paid to)In addition to the clauses mentioned under CPT, Seller undertakes to take out and finance comprehensive transport insurance for the goods. The insurance must be valid at least up to the named place of freight.
DAP"Delivered"(Delivered At Place)Together with this clause is named a specific place where the delivery is carried out by providing the goods ready for unloading. All risks during transportation to the named place are covered by the seller.
DPU"Delivered and unloaded"(Delivered at Place unloaded)The seller assumes transportation costs and bears all risks for the transportation of the goods to the place of destination, including unloading. The goods must be cleared at the designated place. Import handling and import duties are borne by the seller.
DDP"Delivered, duty paid"(Delivered, Duty paid)DDP is equivalent to a maximum obligation for the seller. He undertakes the clearance of import and export and provides the goods ready for unloading at the specified place.
FAS"free long side ship"(Free alongside Ship)This clause applies to deliveries by ship and stipulates that the seller's obligations end as soon as the goods are alongside the cargo ship, i.e. when the goods are delivered to a quay or barge in port and are no longer on board the ship.
FOB"free on board"(Free on Board)Risks for loss or damage of goods are transferred to the buyer as soon as the goods are loaded onto the cargo ship.
CFR"Cost and Freight"(Cost and Freight)In this case, the seller shall bear the costs and risks of transportation to the port of destination. Nevertheless, he remains liable for possible damage or loss of goods only until loading on the ship.
CIF"Cost, insurance and freight"(Cost, Insurance and Freight)In addition to the above obligations, the seller is required by the CIF clause to insure the goods to the place of delivery with minimum insurance coverage. 

Tips on the use of Incoterms in the preparation of sales contracts

In order to avoid unexpected obligations and related damage payments, contractual partners should pay attention to a number of things when defining INCO terms. We at KTB are very familiar with trading contracts on an international level and will be happy to advise you on the drafting and adaptation of sales contracts for MRO parts procurement. 

This is what you should pay attention to when using INCO-Terms

  • INCO-Term clauses define the obligations of the parties to the purchase contract in terms of transportation, financing and security of goods. The clauses stipulated in the purchase Clauses should fit the delivery method and the desired scope of delivery. Our import-export professionals at KTB Hamburg will handle the entire parts procurement process for repair and maintenance materials worldwide, if desired.
  • The Place of delivery should be determined as accurately as possiblein order to prevent misunderstandings regarding liability in the event of possible loss of goods or damage to delivery.