The Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law. They are widely used in international commercial transactions or procurement processes and their use is encouraged by trade councils, courts and international lawyers. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the global or international transportation and delivery of goods. Incoterms inform sales contracts defining respective obligations, costs, and risks involved in the delivery of goods from the seller to the buyer, but they do not themselves conclude a contract, determine the price payable, currency or credit terms, govern contract law or define where title to goods transfers.

The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from the differing interpretations of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide.

“Incoterms” is a registered trademark of the ICC.

The first work published by the ICC on international trade terms was issued in 1923, with the first edition known as Incoterms published in 1936. The Incoterms rules were amended in 1953, 1967, 1976, 1980, 1990, 2000, and 2010, with the ninth version — Incoterms 2020  — having been published on September 10, 2019.

Incoterms 2020

Incoterms 2020 is the ninth set of international contract terms published by the International Chamber of Commerce, with the first set having been published in 1936. Incoterms 2020 defines 11 rules, the same number as defined by Incoterms 2010. One rule of the 2010 version (“Delivered at Terminal”; DAT) was removed, and is replaced by a new rule (“Delivered at Place Unloaded”; DPU) in the 2020 rules.

The insurance to be provided under terms CIF and CIP has also changed, increasing from Institute Cargo Clauses(C) to Institute Cargo Clauses(A). Under the CIF Incoterms rule, which is reserved for use in maritime trade and is often used in commodity trading, the Institute Cargo Clauses (C) remains the default level of coverage, giving parties the option to agree to a higher level of insurance cover. Taking into account feedback from global users, the CIP Incoterms® rule now requires a higher level of cover, compliant with the Institute Cargo Clauses (A) or similar clauses.

In prior versions, the rules were divided into four categories, but the 11 pre-defined terms of Incoterms 2020 are subdivided into two categories based only on method of delivery. The larger group of seven rules may be used regardless of the method of transport, with the smaller group of four being applicable only to sales that solely involve transportation by water where the condition of the goods can be verified at the point of loading on board ship. They are therefore not to be used for containerized freight, other combined transport methods, or for transport by road, air or rail.

Incoterms 2020 also formally defines delivery. Previously, the term had been defined informally but it is now defined as the point in the transaction where “the risk of loss or damage [to the goods] passes from the seller to the buyer”.

Incoterms in government regulation

In some jurisdictions, the duty costs of the goods may be calculated against a specific Incoterm: for example in India, duty is calculated against the CIF value of the goods, and in South Africa the duty is calculated against the FOB value of the goods. Because of this it is common for contracts for exports to these countries to use these Incoterms, even when they are not suitable for the chosen mode of transport. If this is the case then great care must be exercised to ensure that the points at which costs and risks pass are clarified with the customer.

Defined terms in Incoterms

There are certain terms that have special meaning within Incoterms, and some of the more important ones are defined below:

• Delivery: The point in the transaction where the risk of loss or damage to the goods is transferred from the seller to the buyer
• Arrival: The point named in the Incoterm to which carriage has been paid
• Free: Seller has an obligation to deliver the goods to a named place for transfer to a carrier
• Carrier: Any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes
• Freight forwarder: A firm that makes or assists in the making of shipping arrangements;
• Terminal: Any place, whether covered or not, such as a dock, warehouse, container yard or road, rail or air cargo terminal
• To clear for export: To file Shipper’s Export Declaration and get export permit

Variation of Incoterms

Parties adopting Incoterms should be wary about their intention and variations. The desire of the parties should be expressed clearly and casual adoption should be refrained. Also, making additions or variations to the meaning of a certain term should be carefully done as parties’ failure to use any trade term at all can produce unexpected results