Incoterms_® and Commercial Contracts

Note that any flowchart is by necessity very general and should be considered only as a starting point for thinking about which Incoterms® rule to choose. As noted in point 4 of the checklist on page 37, in any given real-life transaction, there are a number of considerations particular to that deal that parties must factor in to their final decision on which Incoterms® 2010 rule to choose. A flowchart alone cannot provide the answer.

The following procedure is provided merely to give an example of an analysis that could lead a seller to choose one Incoterms® 2010 rule over another in a particular case. There are many possible flowcharts for the making of an Incoterms® 2010 decision, and the following are intended only as examples:

1. You wish to sell directly from your factory or place of business. Are you willing to carry out export clearance formalities?
1. If No, choose EXW, which simply requires the seller to make the goods available to the buyer at the seller’s factory or place of business. Note that EXW is suitable primarily for domestic trade. See possible difficulties in using EXW at the Guidance Note on page 15.
2. If Yes, you may use FCA, which in this case requires the seller to deliver the goods, by loading them onto the buyer’s vehicle at the seller’s premises and clearing them for export.

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If the above does not apply, go to:

2. You wish to deliver the goods in your country (or in any event prior to subsequent international transport) and you do not wish to include the cost of the main (international) transport in your quoted price. The Incoterms® 2010 rules you have available are the ‘F’ or ‘free’ rules: FCA, FOB, FAS.
1. If the goods are to travel in containers or by multimodal transport, or if delivery is to be made to an inland or port terminal, choose FCA. The goods are delivered to the first carrier, either at seller’s premises or at a transport terminal.
2. If the goods are general cargo or bulk commodities to be loaded onboard the vessel (or are containers that will be loaded directly by seller in such a traditional fashion) or if for any other reason you wish to transfer risks and divide costs once the goods are onboard the ship, choose FOB.
3. If the goods are to be delivered alongside the ship, choose FAS (export clearance is the buyer’s responsibility).
   If the above does not apply, go to:
3. You wish to include the cost of main international transport in your quoted price. You must choose between ‘C’ and ‘D’ rules, which means you must decide whether you want the risk of loss to be transferred to the buyer upon shipment or only upon arrival.
1. ‘Shipment’ contract – you want the risk of loss to be transferred to the buyer at the time and place of delivery in the seller’s country. Seller must choose a ‘C’ rule.
1. If shipment is containerized or multimodal, or delivery is to an inland or port terminal:
   - choose CPT if you do not want to include the cost of insurance in the quoted price;
   - choose CIP if you do want to include insurance.
2. If shipment is of traditional commodities lifted onboard the ship, or you otherwise wish to divide risks once the goods are onboard the ship:
   - choose CFR if you do not want to include insurance;
   - choose CIF if you do want to include insurance.
2. ‘Arrival’ contract – you want to be entirely responsible for costs and risks up to delivery in the buyer’s country (or your buyer has insisted upon such risk coverage):
1. choose DDP if you want to accept total responsibility up to delivery at the buyer’s premises or the named delivery point;
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2. choose DAT if you want to be responsible for costs and risks including the cost of unloading the goods at destination, but do not want to pay duties or be otherwise responsible for customs formalities; or
3. choose DAP if you want to be responsible for costs and risks – NOT including the unloading of the goods at destination – but do not want to pay duties or be otherwise responsible for customs formalities.

1. You wish to receive the goods directly at your place of business or other point in the country of destination, and you are unwilling to accept any transport risks. You must choose an ‘arrival’ contract (see above).

Are you willing to carry out import clearance formalities?

If No;

1. choose DDP, which gives the seller total responsibility up to delivery at the buyer’s premises or the named delivery point if the shipment is containerized or multimodal, or delivery is to be made to an inland or port terminal. But note that practical realities may prevent a seller from being able to undertake import clearance, so choose this rule with caution. See the Guidance Note at page 20.

If Yes, you may use:

2. DAT, which imposes upon seller total transport responsibility and risk, except as regards import clearance formalities and duties, which are for the buyer’s account. Note that DAT requires the seller to unload the goods at destination; or
3. DAP which imposes upon seller total transport responsibility and risk, except as regards import clearance formalities and duties, which are for the buyer’s account. Note that DAP differs from DAT in that DAP does NOT require the seller to unload the goods at destination.

If the above does not apply, go to:

2. You wish to purchase on the basis of a sale price that includes the cost of the international carriage of the goods, but you accept to bear the risks of such transport. The seller will pay export clearance formalities, whereas you will pay import clearance formalities. The costs of main (international)
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   transport will be borne by the seller. Delivery of the goods takes place in the seller’s country. The buyer must choose a ‘C’ rule.
1. If shipment is containerized or multimodal, or delivery is to an inland or port terminal:
1. choose CPT if you do not want the seller to pay for an insurance cover;
2. choose CIP if you do want to include insurance costs in the price paid by the seller. Note the seller’s insurance obligation under CIP is limited to minimum cover.
2. If shipment is of traditional commodities lifted onboard the ship, or you otherwise wish to divide risks once the goods are onboard the ship:
1. choose CFR if you do not want the seller to pay for an insurance cover;
2. choose CIF if you do want to include insurance costs in the price paid by the seller. Note the seller’s insurance obligation under CIF is limited to minimum cover.

If the above does not apply, go to:

3. You accept to arrange and pay directly for the international carriage of the goods and also to bear the risks of such transport. The costs and risks of main (international) transport will be borne by the buyer. Delivery of the goods takes place in the seller’s country. Buyer must choose an ‘F’ or ‘free’ rule.
1. If you are willing to be responsible only for import customs clearance, but not for export clearance:
1. choose FCA if the goods are to travel in containers or by multimodal transport, or if delivery is to be made to an inland or port terminal. The goods are delivered to the first carrier, either at seller’s premises or at a transport terminal. (Export clearance is the seller’s responsibility);
2. choose FOB if the goods are general cargo or bulk commodities to be loaded directly onboard the ship or if for any other reason you wish to set the transfer of risks and divide costs once the goods are onboard the ship. (Export clearance is the seller’s responsibility);
2. If you are willing to be responsible for both export and import clearance formalities:
• choose EXW if the goods are to be delivered at the seller’s premises. All costs and risks are transferred from the seller to the buyer after the goods have been made available to the buyer (not cleared for export) at the seller’s premises. Note that EXW is suitable primarily for domestic trade. See possible difficulties in using EXW at the Guidance Note on page 15.

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