What is Incoterms? What the Incoterms rules do and not do? and How best to incorporate it? These questions will be answered below with a short introduction of latest version (Incoterms 2020) of it.
What is Incoterms?
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. They are widely used in international commercial transaction or procurement processes and their use is encouraged by trade councils, courts and international lawyers. 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 will occur.
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 differing interpretations of the rules in different countries. As such, they are regularly incorporated into sales contracts worldwide.
The latest version of Incoterms – Incoterms 2020
What the Incoterms rules do
The Incoterms rules explain a set of eleven of the most commonly used three-letter trade terms, e.g., CIF, DAP, etc., reflecting business-to-business practice in contracts for the sale and purchase of goods.
The Incoterms rules describe:
- Obligations: Who does what as between seller and buyer, e.g., who organizes carriage or insurance of the goods or who obtains shipping documents and export or import licenses;
- Risk: Where and when the seller “delivers” the goods; in other words, where risk transfers from seller to buyer;
- Costs: Which party is responsible for which cost, for example, transport, packaging, loading or unloading costs, and checking or security-related costs.
The Incoterms rules are not in themselves – and are therefore no substitute for – a contract of sale. They are devised to reflect trade practice for no particular type of goods – and for any. They can be used as much for the trading of a bulk cargo of iron or as for five containers of electronic equipment or ten pallets of airfreighted fresh flowers.
The Incoterms rules do not deal with the following matters:
- Whether there is a contract of sale at all;
- The specifications of the goods sold;
- The time, place, method, or currency of payment of the price;
- The remedies which can be sought for breach of the contract of sale;
- Most consequences of delay and other breaches in the performance of contractual obligations;
- The effect of sanctions;
- The imposition of tariffs;
- Export of import prohibitions;
- Force majeure or hardship;
- Intellectual property rights;
- The method, venue, or law of dispute resolution in case of such breach.
These are matters for which the parties need to make specific provisions in their contract of sale. Failure to do so is likely to cause problems later if disputes arise about performance and breach. In essence, the Incoterms 2020 rules are not themselves a contract of sale: they only become part of that contract when they are incorporated into a contract which already exists. Neither do the Incoterms rules provide the law applicable to the contract. There may be legal regimes which apply to the contract, whether international, like the Convention on the International Sale of Goods (CISG); or domestic mandatory law relating, for example, to health and safety or the environment.
What is Incoterms
Carriage Paid To (CPT) Incoterms 2020
Carriage and Insurance Paid To (CIP)Incoterms 2020
Cost and Freight Incoterms (CFR)2020
Cost Insurance and Freight (CIF) Incoterms 2020
Delivered Duty Paid (DDP) Incoterms 2020
Delivered at Place (DAP) Incoterms 2020
Delivered at Place Unloaded (DPU) Incoterms 2020
Ex-Works (EXW) Incoterms 2020
Free Carrier (FCA) Incoterms 2020
Free Alongside Ship (FAS)Incoterms 2020
Free On Board (FOB) Incoterms 2020
To Download PDF file of Incoterms 2020, please click HERE
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