Why Incoterms Exist
The Problem Incoterms Solve
In international trade, buyers and sellers in different countries often have different legal systems, languages, and business customs. Before Incoterms, there was significant ambiguity about who was responsible for:
- Freight costs from origin to destination
- Insurance coverage during transit
- Export clearance (packing, loading, export documentation)
- Import clearance (customs duties, import taxes)
- Risk of loss or damage — at what point does risk transfer from seller to buyer?
What Are Incoterms?
Incoterms (International Commercial Terms) are a set of 11 standardized three-letter trade terms published by the
International Chamber of Commerce (ICC). The current version is
Incoterms® 2020, effective January 1, 2020.
Each Incoterm defines:
- The point where risk transfers from seller to buyer
- Who pays for freight costs to each point
- Who is responsible for insurance
- Who handles export/import clearance
Important: What Incoterms Do NOT Cover
- Transfer of ownership/title (governed by the sales contract)
- Price or payment terms
- Remedies for breach of contract
- Intellectual property rights
The 11 Incoterms 2020
They are divided into two groups:
- Any Mode: EXW, FCA, CPT, CIP, DAP, DPU, DDP (can be used for any transport mode)
- Sea/Inland Waterway Only: FAS, FOB, CFR, CIF (only for sea/barge transport)