Incoterms

Incoterms are a set of standards used in international and domestic contracts for the delivery of goods, recognized by UNCITRAL as the global standard for the interpretation of the most common terms in foreign trade. The 11 individual rules issued by the International Chamber of Commerce (ICC) define the responsibilities of sellers and buyers for the sale of goods in international transactions, clarifying the tasks, costs, and risks to be borne by buyers and sellers. In air cargo operations, commonly used terms include FCA (Free Carrier), highly recommended for air cargo shipments, and CIP (Carriage and Insurance Paid To) where the seller pays freight to the agreed destination. The current version is Incoterms 2020, published by the ICC and expected to be in effect for at least 10 years.

A Singapore electronics manufacturer ships 500 laptops from Changi Airport (SIN) to Los Angeles International Airport (LAX) under FCA Incoterms. The AWB number 618-34567892 (618 being Cathay Pacific Cargo's prefix) shows FCA terms, meaning the seller delivers goods to Cathay Pacific's cargo terminal at SIN, handles export clearance, and risk transfers when the carrier takes charge. Under CIP terms, an Emirates SkyCargo shipment with AWB 176-45678901 from Dubai International (DXB) to Frankfurt Cargo (FRA) requires the seller to pay air freight costs and provide insurance coverage with Institute Cargo Clauses 'A' level protection until the goods reach Frankfurt.

• International Commercial Terms
• trade terms
• delivery terms
• EXW
• FOB
• CIF
• DAP
• DDP
• CPT
• CFR
• FCA
• CIP
• DPU
• ex works
• free on board
• cost insurance freight
• delivered duty paid
• delivered at place

Which Incoterms are most commonly used for air freight shipments?

FCA (Free Carrier) is highly recommended for air cargo and most commonly used, while CIP (Carriage and Insurance Paid To) and CPT (Carriage Paid To) are also frequently used for air shipments. FCA is used in approximately 40% of all international shipments. Under Incoterms 2020, CIP now requires higher level insurance coverage with Institute Cargo Clauses 'A' or 'Air' protection.

What must be included when writing Incoterms in air cargo contracts?

Contracts must specify the year, reading 'CIP New York Airport (Incoterms 2020)' as omitting the year can lead to disputes if an older version is used in court. The named place should immediately follow the three-letter Incoterm abbreviation and be precise when defining the location, especially with larger cities that may have several terminals. As of January 1, 2020, all sales contracts should include references to Incoterms 2020 rules.