Getting Up to Speed with Incoterms

Incoterms (or international commercial terms) are designed to assist traders when goods are sold and transported. Published by the International Chamber of Commerce, the terms clearly communicate the costs and risks associated with the transportation and delivery of goods. The Incoterms rules are used by buyers and sellers worldwide for a clear interpretation of the most commonly used terms in international trade.

The ICC publishes an updated set of Incoterms every ten years and unveiled the latest version in late 2019 before entering them into force on January 1, 2020.

How Incoterms work

The 11 Incoterms rules are divided into two groups:

1. Seven are applicable to any method of transport.
2. Four apply to trade that solely involves transportation by water.

Each three-letter Incoterms rule specifies:

• the obligations of each party (ie. who is responsible for transport, import and export clearance, etc.), and
• the point in the journey where the risk transfers from the seller to the buyer.

So, by agreeing on an Incoterms rule and incorporating it into the sales contract, the buyer and seller have a precise understanding of each party’s obligation and where responsibility lies in the event of loss, damage, or other mishap.

Read more about the current Incoterms, including:

• An in-depth look at the most common terms, and
• Information on all 11 Incoterms rules

What to expect for Incoterms 2020

Incoterms 2020 will reflect the last decade of changes to the global trade landscape. This means eliminating outdated or underused terms, refining existing terms, and introducing new ones.

The areas being evaluated for their update may include:

• Removal or replacement of the FAS, EXW, and DDP terms
• Amendment of the FOB and CIF terms
• Introducing a new CNI (Cost and Insurance) Incoterm
• Splitting both FCA and DDP into two terms each
• Introducing new Incoterms to address threats around cyber and transportation security – and possibly others, too.

Read more about why Incoterms matter and get in touch with us to learn how Incoterms can clarify your international trade process.

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