Incoterms, or International Commercial Terms, are a set of internationally recognized rules that define the responsibilities of sellers and buyers in the arrangement of shipments and the transfer of liability involved at various stages of the transaction. They were created by the International Chamber of Commerce (ICC) to provide a common language that traders can use to set the terms for their trades. Incoterms are widely used in international commercial transactions or procurement processes and their use is encouraged by trade councils, courts, and international lawyers.
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 uncertainties arising from the differing interpretations of the rules in different countries. As such, they are regularly incorporated into sales contracts worldwide.
There are currently 11 Incoterms rules, which are divided into four principal categories: E, F, C, and D. The categories are based on the mode of transport used in the shipment. The Incoterms rules are regularly revised to accommodate changes in global trade, with the latest version being Incoterms 2020.
Some of the key features of Incoterms include:
- Responsibilities: Incoterms specify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.
- Legal effect: All contracts using any Incoterms are valid if they are agreed upon by all parties to the transaction and correctly identified on the export-related documents.
- Limitations: Incoterms do not address all the conditions of a sale, identify the goods being sold or list the contract price, or reference the method or timing of payment negotiated between the seller or buyer.
In summary, Incoterms are a set of rules that define the responsibilities of sellers and buyers in international commercial transactions. They provide a common language that traders can use to set the terms for their trades and are widely used in international trade.
