What are Incoterms?
Incoterms® are a set of standard three-letter trade terms published by the International Chamber of Commerce. Each rule defines where the seller's delivery obligation ends, where risk passes to the buyer, and which party pays which costs. The current edition is Incoterms 2020.
At a glance
| Term | Incoterms |
|---|---|
| Definition | ICC-published rules defining seller and buyer responsibilities for delivery, risk and cost in international trade. |
| Category | Logistics & delivery |
| Related terms | EXW (Ex Works), FOB, CIF, DDP, B/L (Bill of Lading), Laycan, Demurrage |
What it is used for
Quoting a price without an Incoterms rule is meaningless, because the price depends entirely on how far the seller carries the goods. The rule, together with a named port or place, tells both sides exactly what is included.
Key points
- Eleven rules. Seven work for any transport mode; four — FAS, FOB, CFR and CIF — are for sea and inland waterway only.
- Always quote the rule with a named place and the edition, for example 'CIF Rotterdam, Incoterms 2020'.
- They allocate delivery, risk transfer, carriage, insurance, export and import clearance costs.
- They are not law. They apply because the contract incorporates them by reference.
What to watch for
- Incoterms do not transfer title, set the price, govern payment, or say what happens on breach — the contract must handle all of that.
- Using a sea-only rule such as FOB for containerised cargo is a classic error; FCA is usually the correct rule for containers.
- Risk and cost do not always transfer at the same point. Under CIF the seller pays freight to destination but risk passes at the load port.
Frequently asked questions
Which Incoterms edition should I use?
Incoterms 2020 is current, but earlier editions remain valid if the contract names them. Always state the edition to avoid ambiguity.
Do Incoterms decide who owns the goods?
No. Title transfer is governed by the sales contract and applicable law, not by the Incoterms rule.
What is the most common Incoterms mistake?
Using FOB or CIF for container shipments. Those rules assume loading over the ship's rail, which does not reflect how containers are handed over at a terminal.
Related terms
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