Incoterms®: An Overview
What are Incoterms?
Incoterms are a set of 11 international trade rules issued by the International Chamber of Commerce (ICC) to define the responsibilities of sellers and buyers for the sale of goods in international markets. Each of these rules clarifies the costs, tasks, and risks to be taken care of by buyers and sellers during the completion of these transactions. If you’re an international seller, it’s helpful to familiarize yourself with Incoterms, in order to secure a smoother process of defining who is responsible for each step of the purchase and delivery.
There are 11 Incoterms rules and they are all grouped into two categories which reflect the modes of transport for the sold goods. For example, of these 11 rules, seven of them can be used for any and all mode(s) of transportation, while only four of them apply to sea, land, or inland waterway transport.
The Incoterms rules are edited or updated once every 10 years. Incoterms® 2020, the newest version, was released at the end of 2019 and was put to use starting on Jan. 1 of this year.
Incoterm | Sea, Land, or Inland Waterway | All Modes of Transport |
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*** The DPU Incoterms replaces the old DAT, with an additional requirement for the seller to unload the goods from the arriving mode of transport.
Can I use older versions of Incoterms® after January 1, 2020?
Yes. Although the ICC recommends using the most recent Incoterms® 2020, both parties to a sales contract can agree to use any version of these rules. The only thing required is to clearly specify the chosen version of Incoterms being used in a given sales contract.
What Incoterms Cover
- Each Incoterm rule provides a statement about the seller’s responsibility to provide the goods, along with a commercial invoice, in conformity with the contract of sale.
- Each Incoterm rule provides a statement about the buyer’s responsibility to pay the price of goods, as provided in the contract of sale.
- Each Incoterm rule provides a statement about which party is responsible for obtaining any needed export licenses or official authorization required for export and for carrying out customs formalities needed for the completion of the export. This statement also specifies which party will be responsible to bear the cost of handling the given task.
- Each Incoterm rule provides a corresponding statement about which party is responsible for obtaining any import licenses or other official authorization, required for import and for carrying out customs formalities needed for the completion of the import of these goods. This statement also specifies which party will be responsible to bear the cost of handling the given task.
- Each Incoterm rule provides specifics as to which party will be responsible for obtaining and providing cargo insurance for the sold goods. This statement also specifies which party will be responsible to bear the cost of handling the given task.
- Each rule also contains statements about which party is responsible for packing the goods for transportation to overseas destinations and for bearing the costs of pre-shipment inspections.
- Each Incoterm rule specifies the cargo delivery responsibilities of the seller and the buyer for when delivery takes place.
- Each rule also states as to when the risk of loss or damage to the goods is transferred from the seller to the buyer.
What Incoterms Don’t Cover
Incoterms are incorporated to the Contract of Sale. They are used to specify certain responsibilities of the buying or selling parties, however, they don’t:
- Address all conditions of the sale;
- Identify the sold goods or list their contract prices;
- Reference the agreed-upon method or time of payment;
- Specify which documents are required from the seller to be given to the buyer for customs clearance in the buyer’s country;
- Address the liability for the failure to provide the goods according to the contract of sale. This includes delayed delivery or disputed resolution mechanisms.
- When the title and ownership of the goods pass from the seller to the buyer.
To learn more about specific Incoterms, head over to our Trade Knowledge Base.
