Incoterms

Incoterms, short for International Commercial Terms, are a set of standardized trade terms published by the International Chamber of Commerce (ICC). They define the responsibilities of seller and buyer for the delivery of goods under international sales contracts, including who arranges transport, who pays costs, and who bears risk at various points in the shipment.

Incoterms do not constitute a complete contract; they govern delivery obligations and the allocation of costs and risk related to the movement of goods, including export clearance and, where applicable, insurance. They apply to any mode of transport, with some terms specific to sea or inland waterway transport (for example FAS, FOB, CFR, CIF) and others usable for any transport mode (EXW, FCA, CPT, CIP, DAP, DPU, DDP). The term also specifies the point at which risk passes from seller to buyer and the responsibilities for delivery to the named place.

The ICC publishes Incoterms in editions, with Incoterms 2020 being the widely used version. Contracts should reference both the exact Incoterm and the version, along with a named place. Responsibilities vary across terms: EXW places minimal obligation on the seller, while DDP places maximum obligation on the seller, with other terms representing intermediate allocations of risk and costs. For terms involving insurance, CIF and CIP require the seller to procure insurance to defined limits.

Practical use involves selecting an Incoterm that reflects which party handles transport, insurance, customs clearance, and taxes, then clearly incorporating the chosen term and version into the contract. This helps reduce ambiguity and align logistics, costs, and risk management between trading partners.