International Commercial Terms (in brief: ‘Incoterms’) are a series of pre-defined commercial terms published by the International Chamber of Commerce relating to international commercial law.
Incoterms are also known as ‘terms of delivery’, because they regulate the rights and duties of buying and selling parties. Moreover, Incoterms define the terms of shipment and delivery, as well as the transfer of risk, between the buyer and the seller. Hence, Incoterms are international agreements about transport of goods. When goods are imported or exported, clear agreements concerning responsibility of buying and selling parties are very useful, especially if these are applied world-wide.
The terms of delivery concern various elements, namely:
- What liabilities do buyer and seller have;
- Which party takes care of insurance, licenses and authorisation;
- Which party takes care of the transport and until where;
- When are the risks and costs of the delivery over from the selling party to the buyer (this moment is referred to as the so-called ‘critical point’).
Incoterms are no replacement for a contract of sale. Subjects as payment, alienation of income, juridical means in case of defaults, duration and the ending of agreements, legal and jurisdiction choices, but also important determinations about intellectual property and confidentiality are not covered by incoterms, but need to be agreed upon separately. This implies that those terms and conditions have to be agreed in a legal framework. Moreover, when deals between two parties are made regularly, a master agreement would be efficient as it standardises transacting. In such a standard legal framework all non-commercial terms can be defined. In case of a conflict, parties can rely on the defined rights and they need to respect the agreed duties.
At every update of the Incoterms, some might be removed, while others can be added. In the 2020 version, Delivered at Terminal (DAT) was removed and replaced by a new rule, namely Delivered at Place Unloaded (DPU). As a result, in the 2020 version, there are included a total of eleven Incoterms, of which there seven are for every kind of transportation (air, land, sea, rail), while four of them are specifically suitable to shipping (seaborne transport).
- EXW: Ex Works
- FCA: Free Carrier
- CPT: Carriage Paid To
- CIP: Carriage and Insurance Paid to
- DPU: Delivered at Place Unloaded
- DAP: Delivered At Place
- DDP: Delivery Duty Paid
Transport over water
- FAS: Free Alongside Ship
- FOB: Free On Board
- CFR: Cost and Freight
- CIF: Cost Insurance and Freight