International Commerce Terms were first created by the international Chamber of Commerce (ICC) in 1936. Updated every decade, the current version is Incoterms 2020 which includes 11 main terms. Incoterms are universal trade terms that define costs, risks, and responsibilities between buyers and sellers of goods. This includes the logistics and management of cargo, transportation costs, and insurance and liabilities. They exist to help buyers and sellers clearly communicate the trade terms and define who bears responsibility for the goods at each state of the journey.
Incoterms Do Include
- Points of delivery
- Who pays transportation costs
- Who is responsible for import/export documentation, licenses, and other contacts
- Who assumes responsibility for the goods (and therefor risk) at each stage of the transportation chain
Incoterms Don’t Include
- Contractual rights unrelated to deliveries (e.g. property rights)
- Ramifications of a breach of contract
- Who is responsible in a force majeure situation
The Importance of Incoterms
Why is it important to define buyer and seller responsibilities? Here are four big reasons:
- Clear responsibilities: All parties use the same trade terms which are defined in specific ways. This creates a commonality of language ensuring buyers and sellers clearly understand their responsibilities at a global level.
- Fair Competition: Buyers and sellers can operate without fear of losing business, being fined, or facing penalties due to unfair business practices (including bribery).
- Timely Payments: All financial and procedural aspects of a shipment are outlined, eliminating disputes and aiding prompt and accurate payments for goods and services.
- Reduced Risk: Buyers and sellers know who assumes liability if shipment problems occur at any stage of transport.
What Changed in 2020?
For a detailed look at what’s new in Incoterms 2020 — including updates to DPU, CIP insurance requirements, and more — check out our blog.
Remember…
- Always remember to include the named place of delivery as incoterms can be meaningless without the reference.
- Be sure to cite incoterms and the correct version as they do change. For example: DAP (delivered at place) 123 Park Ave New York, NY Incoterms 2020.
Incoterms are NOT insurance
Each party is responsible for arranging insurance to mitigate the risks they assume during transport. A marine cargo insurance policy from Falvey Insurance Group gives you the comprehensive coverage you need – and you can customize it.
Want to Dive Deeper Into Incoterms?
We’ve broken down several Incoterms for a more granular look:
