Product Code Database
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. Incoterms 2020 Incoterms define the responsibilities of exporters and importers in the arrangement of shipments and the transfer of liability involved at various stages of the transaction. They are widely used in international commercial transactions or procurement processes and their use is encouraged by trade councils, courts and international lawyers. (1981). 9780070675131, West Group. ISBN 9780070675131 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.
CISG art. 66 is a supplement to an inadequate Incoterms rule.
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.
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.Incoterms Explained, Freight Insurance, accessed 27 May 2020
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 passes from the seller to the buyer".Incoterms® 2020 English Edition
EXW means that a buyer incurs the risks of bringing the goods to their final destination. Either the seller does not load the goods on collecting vehicles and does not clear them for export, or if the seller does load the goods, they do so at buyer's risk and cost. If the parties agree that the seller should be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale.
There is no obligation for the seller to make a contract of carriage, but there is also no obligation for the buyer to arrange one either - the buyer may sell the goods on to their own customer for collection from the original seller's warehouse. However, in common practice the buyer arranges the collection of the freight from the designated location, and is responsible for clearing the goods through Customs. The buyer is also responsible for completing all the export documentation, although the seller does have an obligation to obtain information and documents at the buyer's request and cost.
These documentary requirements may result in two principal issues. Firstly, the stipulation for the buyer to complete the export declaration can be an issue in certain jurisdictions (not least the European Union) where the customs regulations require the declarant to be either an individual or corporation resident within the jurisdiction. If the buyer is based outside of the customs jurisdiction, they will be unable to clear the goods for export, meaning that the goods may be declared in the name of the seller by the buyer, even though the export formalities are the buyer's responsibility under the EXW term.
Secondly, most jurisdictions require companies to provide proof of export for tax purposes. In an EXW shipment, the buyer is under no obligation to provide such proof to the seller, or indeed to even export the goods. In a customs jurisdiction such as the European Union, this would leave the seller liable to a sales tax bill as if the goods were sold to a domestic customer. It is therefore of utmost importance that these matters are discussed with the buyer before the contract is agreed. It may well be that another Incoterm, such as FCA seller's premises, may be more suitable, since this puts the onus for declaring the goods for export onto the seller, which provides for more control over the export process.
In many respects this Incoterm has replaced FOB in modern usage, although the critical point at which the risk passes moves from loading aboard the vessel to the named place. The chosen place of delivery affects the obligations of loading and unloading the goods at that place.
If delivery occurs at the seller's premises, or at any other location that is under the seller's control, the seller is responsible for loading the goods on to the buyer's carrier. However, if delivery occurs at any other place, the seller is deemed to have delivered the goods once their transport has arrived at the named place; the buyer is responsible for both unloading the goods and loading them onto self own carrier.
The seller pays for the carriage of the goods up to the named place of destination. However, the goods are considered to be delivered when the goods have been handed over to the first or main carrier, so that the risk transfers to buyer upon handing goods over to that carrier at the place of shipment in the country of Export.
The seller is responsible for origin costs including export clearance and freight costs for carriage to the named place of destination (either the final destination such as the buyer's facilities or a port of destination. This has to be agreed to by seller and buyer, however).
If the buyer requires the seller to obtain insurance, the Incoterm CIP should be considered instead.
CIP can be used for all modes of transport, whereas the Incoterm CIF should only be used for non-containerized sea-freight.
The terminal can be a port, airport, or inland freight interchange, but must be a facility with the capability to receive the shipment. If the seller is not able to organize unloading, they should consider shipping under DAP terms instead. All charges after unloading (for example, import duty, taxes, customs and on-carriage) are to be borne by buyer. However, any delay or demurrage charges at the terminal will generally be for the seller's account.
Some uncertainty has emerged since Incoterms 2020 were adopted as to the meaning of "unloaded" when goods are delivered in a container, usually by sea, as the removal of the container from the incoming vessel may suggest that it has been "unloaded", but the goods themselves are not yet "unloaded" while they remain in the container.Mantissa Elearning, Showdown at the container yard, accessed 28 January 2021
Once goods are ready for shipment, the necessary packing is carried out by the seller at their own cost, so that the goods reach their final destination safely. All necessary legal formalities in the exporting country are completed by the seller at their own cost and risk to clear the goods for export.
After arrival of the goods in the country of destination, the customs clearance in the importing country needs to be completed by the buyer, e.g. import permit, documents required by customs, etc., including all customs duties and taxes.
Under DAP terms, all carriage expenses with any terminal expenses are paid by seller up to the agreed destination point. The necessary unloading cost at final destination has to be borne by buyer under DAP terms.
The most important consideration for DDP terms is that the seller is responsible for clearing the goods through customs in the buyer's country, including both paying the duties and taxes, and obtaining the necessary authorizations and registrations from the authorities in that country. Unless the rules and regulations in the buyer's country are very well understood, DDP terms can be a very big risk both in terms of delays and in unforeseen extra costs, and should be used with caution.
The four rules defined by Incoterms 2020 for international trade where transportation is entirely conducted by water are as per the below. It is important to note that these terms are generally not suitable for shipments in shipping containers; the point at which risk and responsibility for the goods passes is when the goods are loaded on board the ship, and if the goods are sealed into a shipping container it is impossible to verify the condition of the goods at this point.
Also of note is that the point at which risk passes under these terms has shifted from previous editions of Incoterms, where the risk passed at the ship's rail.
The first English court case which referred to c.i.f. was Tregelles v. Sewell (1862),7 H & N 574, 158 ER where the court established that under c.i.f. terms, risk passes to the buyer on shipment.University of Southampton, Session 6 - Transfer of Risk: General Principles, from Transfer of risk in commercial sales contracts, accessed 21 May 2021 In the case of E. Clemens Horst Co. v. Biddell Brothers, the UK House of Lords ruled in 1911 that "the sellers in a c.i.f. contract were entitled to payment of the price upon tender of the bill of lading and insurance policy. The purchasers' intent to wait for satisfactory delivery and inspection was overruled.House of Lords, E. Clemens Horst Co. v. Biddell Brother, UKHL 680, handed down 3 November 1911, accessed 2 March 2021 Shortly afterwards in 1915-16, the case of Arnhold Karberg & Co. v. Blythe, Green, Jourdain & Co. in the High Court and Court of Appeal showcased judicial debate about whether a c.i.f. bill of lading could evidence a sale of goods, Scrutton LJ ruling in the High Court that it did not, because a c.i.f. sale is "not a sale of goods, but a sale of documents relating to goods".King's Bench Division, Arnhold Karberg & Co v Blythe, Green, Jourdain & Co. (1915) 2 KB 379 The Court of Appeal upheld his decision, although Bankes LJ and Warrington LJ argued that "a c.i.f. contract is a contract for the sale of goods to be performed by the delivery of the documents".Todd, P., Arnhold Karberg, updated 16 April 1996, archived 3 May 2014, accessed 20 May 2021 In a Ninth Circuit Court of Appeals case referencing the Arnhold Karberg case and also Manbre Saccharine v Corn Products (1919), it was explained that "under a c. i. f. contract the obligation of the seller is to deliver documents rather than goods, to transfer symbols rather than physical property".United States Court of Appeals for the Ninth Circuit, Macondray & Co. v. WR Grace & Co., 30 F. 2d 647, 1929, accessed 19 July 2023 In the Manbre Saccharine case the seller was unable to enforce the c.i.f. contract where the goods had been lost at sea, but Henry McCardie emphasised that this was because no insurance policy was tendered, only a letter confirming insurance, and also because the goods did not match the contracted description: had these matters been otherwise, the contract would have been enforced.Todd, P., Manbre Saccharine Co. Ltd. v. Corn Products Co. Ltd., Kings Bench Division, 1919 1 K.B. 198, updated 16 February 1999, archived 3 December 2014, accessed 19 July 2023
| + | Incoterm | Loading at origin | Export customs declaration | Carriage to port of export | Unloading of truck in port of export | Loading on vessel/airplane in port of export | Carriage (sea/air) to port of import | Insurance | Unloading in port of import | Loading on truck in port of import | Carriage to place of destination | Import customs clearance | Import duties and taxes | Unloading at destination |
With all Incoterms beginning with D there is no obligation to provide insurance, however the insurable risk is for the seller's account.
Rules for sea and inland waterway transport
| Incoterm 2020 | Seller | Carrier | Port | Loading at Port | Onboard | Unloading at Port | Port |
Rules for any modes of transport
| Incoterm 2020 | Seller | Carrier | Port | Ship | Port | Terminal | Named place | Unloading at destination |
Use of Incoterms in Latin American International Trade
In Latin America, Incoterms play a crucial role in facilitating international business by clarifying the responsibilities of buyers and sellers in global transactions. Companies in countries such as Ecuador, Colombia, and Peru use Incoterms to standardize logistics operations, reduce misunderstandings, and ensure compliance with international regulations. The most commonly applied terms in the region are FOB (Free on Board), CIF (Cost, Insurance and Freight), and DAP (Delivered at Place), especially in the export of agricultural and manufactured products.
Ecuadorian exporters of bananas, flowers, and shrimp often rely on FOB terms when shipping to European or North American markets, as this allows them to maintain control until the goods are loaded onto the vessel. On the other hand, importers prefer CIF, which simplifies costs by including insurance and freight in a single price.
Training on Incoterms has also increased in business schools and chambers of commerce across the region. These organizations promote the latest version, Incoterms 2020, published by the International Chamber of Commerce (ICC), which introduced clarifications on cost allocation and security obligations. The use of standardized trade terms contributes to transparency, minimizes disputes, and strengthens regional competitiveness in the global marketplace.
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