An Introduction to Incoterms and Their Use

What are Incoterms?

Incoterms is an abbreviation for “International Commercial Terms.” Issued by the International Chamber of Commerce (ICC) and globally recognized, they prevent confusion in foreign trade contracts by clarifying the obligations of buyers and sellers and providing a standard list of global terms and acronyms used in trade. 

Why would I use Incoterms? 

Different practices and legal interpretations between traders around the world necessitated a common set of rules and guidelines, which led to the development of Incoterms. These are terms that hold a common, precise, and defined meaning. Whether you are filing a purchase order, packaging and labelling a shipment for freight transport, or preparing a certificate of origin at a port, the Incoterms rules are there to guide you. Various parties involved in both domestic and international trade use Incoterms as a shorthand to help understand one another and the exact terms of their business arrangements. Given the clarifying advantages of incoterms, it is recommended that they be used in a sales contract. Visit the International Chamber of Commerce (ICC) website for more.

What are the different Incoterms that have been developed? 

The ICC updates Incoterms every 10 years to align them with the latest trading practices. The most recent version of Incoterms is Incoterms 2020. 

Some examples of Incoterms include:

  • Ex works (EXW): These imply minimum obligations on the seller, requiring goods to be delivered to the buyer at any location.
  • Delivered at place (DAP): This requires the seller to deliver goods ready for unloading at the destination place agreed by the buyer.  
  • Delivered duty paid (DDP): This states that the seller is responsible for all costs and risks of delivering goods to the buyer, including goods clearance and handling customs formalities.
  • Free alongside (FAS): This obliges the seller to bear risks until goods are either procured or placed alongside a ship/vessel nominated by the buyer. The latter is the responsible for carriage of the goods from the shipment port onward and handling all import formalities. 
  • Free on board (FOB): This deems that the seller is the one to deliver goods on board the ship agreed by the buyer. Once the goods reach the destination port, the buyer bears all import formalities. 
  • Cost and freight (CFR): CFR is similar to FOB, but requires the seller to bear risks until goods are placed on board of vessel at the delivery port. The seller must also manage all export formalities and unloading costs when goods reach the destination port. 
  • Cost, insurance, and freight (CIF): CIF is similar to CFR, but requires the seller to insure the buyer’s risk of loss or damage from the shipment port to the destination port, at least.
  • Carriage and Insurance Paid to (CIP): This requires the seller to obtain insurance in addition to complying with obligations on handing over goods to carriers and clearing goods for export.

For detailed information about Incoterms 2020, see the ICC’s new e-commerce platform ICC Knowledge 2 Go in both print and digital formats, which can be purchased online for a fee. The edition is also translated into 29 languages. You can contact your local ICC country office and country representatives for their help and more information. You can also visit the websites of some international law firms to learn more about different types of incoterms. For example, you can visit Aceris Law and Delta Net.

Where can I get training on how to use Incoterms? 

The ICC national committees worldwide organize different training seminars, online courses, and certificate programs on Incoterms and other related topics. Their Incoterms 2020 professional certification covers each Incoterm’s rules and the corresponding obligations. It is especially helpful for professionals involved in trade and international business transactions, including those working in legal and regulatory affairs. Learn more about the ICC Incoterms 2020 Certificate.