What Are Incoterms?

A crucial aspect of all pipe-related deals, Incoterms is an amalgamation of three separate words, namely, International Commercial Terms. Since 1926, they have continued to offer a generally approved set of laws that form the basis of all international commercial transactions. 

International Chamber of Commerce Approved

Incoterms are validated by the International Chamber of Commerce (ICC) and are an asset to International Commercial Law. These rules are widely accepted by governments, commercial bodies, and legal authorities around the world as they provide a definite set of commercial definitions and lexicons used in buying/selling international goods. Incoterms are the backbone of international commercial transactions as they provide the rules for interpreting commercial terms present in contracts. 

What Do Incoterms Cover: How and Where are Incoterms Used?

First published by ICC in 1936, Incoterms® rules provide "internationally accepted definitions and rules of interpretation for most common commercial terms used in contracts for the sale of goods". They offer buyers and sellers a common, agreed-upon set of terms to ensure seamless import/export while also helping them avoid potential commercial errors. Incoterms are crucial to help manage safe transactions for tasks like

  • Purchase order filing
  • Prepping required documents for export/imports at relevant ports, such as a Certificate of Origin
  • Labeling/Packing freight shipments

Responsibilities/Tasks of Buyers and Sellers

Incoterms offer users a guide to the threats, responsibilities, and costs associated with their deals and contracts. The current version in operation is Incoterms 2020, which contains a set of 11 internationally accepted rules highlighting the tasks and responsibilities of buyers and sellers. 

These listings offer details relating to  

  • Responsibilities specified for payment/management of custom clearing charges, document screenings, insurance covers, product shipping, etc.
  • Four out of 11 rules cover requirements specifically for sea, inland or land-based product transport, including FIF, CIR, FAS, and FOB
  • Seven of 11 rules under Incoterms generally categorize the responsibilities for items transported via any means. This list includes CPT, DPU, CIP, DAP, FCA, and DP. 

Crucial Specifications Highlighted By Incoterms

As mentioned, Incoterms 2020 is the current standard for these definitions. According to the most recent updates, the set of rules highlighted under this includes 

(For the seven rules for any mode(s) of transport)

    EXW - Ex Works (delivery location to be specified)

    FCA  - Free Carrier  (delivery location to be specified) 

    CPT  - Carriage Paid to  (delivery location to be specified) 

    CIP -  Carriage and Insurance Paid To (delivery location to be specified)  

    DAP - Delivered at Place  (delivery location to be specified)  

    DPU - Delivered at Place Unloaded  (delivery location to be specified)  

    DDP - Delivered Duty Paid  (delivery location to be specified).  

  • DPU Incoterms are updated from the old DAT according to the 2020 version. With this change comes additional requirements for the seller regrading goods unloading from incoming transport unit. 

(For the four rules for Sea, Inland, and Waterway Transport}

     FAS - Free Alongside Ship (include loading port name) 

     FOB - Free on Board (include loading port name)

     CFR - Cost and Freight (include loading port name) 

     CIF -  Cost Insurance and Freight (include loading port name) 

What Incoterms Do Not Cover 

Rather than a detail the intricaies of each contract, incoterms provide the apparatus to define conditions during transactions. While these rules are generally found in thecontract writings, they do not highlight specific details of the deal. Intercoms do not address all the conditions of the commercial transactions. Some of the areas left over by these rules include

  • Product price listings
  • Identification of products on sale
  • Address payment date/method

Rather, when goods pass hands from seller to buyer, it is the responsibility of both parties to specifiy these details in ther contracts. For example, buyers have to highlight the documents that they want the sellers to provide to ensure custom clearance and other litigations. Besides this, these parties must use the incoterms as a guide to details out the possible liabilities for product failure. Providing assurance against disputes and delivery issues must also be highlighted in the contract. 

FAQs

Are there other Intercoms versions? Are they important?

Ans: The other version still in effect is Intercoms 2010 - these regulations continue to be in effect for companies using them. However, as the latest edition, Intercoms 2020 is the go-to version of these transport rules.

Who makes the Incoterms rules?

Ans: The ICC, or the International Chamber of Commerce, founded in 191, is the publisher of incoterm rules. This body looks after the interests of global trade, with specific emphasis on legal interpretations of contracts. The first set of incoterms was published in 1936, and the ICC has been maintaining and updating them ever since to facilitate a common set of international guidelines. 

Are Incoterms 2020 only valid for the year specified?

Ans: Following the 2010 version, Incoterms 2020 is the latest major update to the international trade rules as specified by the ICC. Therefore the yearly updates on these regulations since incoterms 2020 are still as valid as ever. All contracts and declarations specified under these rules are 100% valid even after the year 2020. However, all parties must have accepted and agreed upon the export-related conditions outlined to verify this. Buyers and sellers must also specify the version of the incoterms they are using in their sales contract.

Why is incoterms crucial for conducting international trade?

Ans: As opposed to the limited reach offered by trade clauses like the US’s own Harmonized Tariff Schedule, incoterms offers a global lexicon for conducting commercial trade. Because their reach is international, these rules address larger sets of issues like transport, contract building, and more. Because they are not specifically codified to suit the trade terms of a specific nation, incoterms are able to discuss global concerns more harmoniously and objectively. 

When were Incoterms rules late updated? Is Incoterms 2020 the only valid version?

Ans: The last major Incoterms update was on 2020, following the restructuring of the 2010 version of the same. But, since then, these rules have been refreshed yearly, albeit on a smaller scale. However, the terms under Incoterms 2010 are still valid and operate simultaneously with Incoterms 2020 for businesses that implemented them before 2019.