Your essential incoterms guide?
Before you enter into an international buying or selling agreement, you have the right to negotiate specific terms (e.g. the price, quantity, and characteristics of the goods) related to the sale. In each international contract, you should also include an international commercial term, or “incoterm” for short.
Incoterms are a series of internationally recognised sales-related trade terms. These terms, summarized in our incoterms guide, clearly define the costs, risks, and obligations of both parties (the buyer and the seller) in an international sales contract. Each term clearly defines:
- Which party must take responsibility for transport costs for the goods (taxes, insurance, and duties included);
- Where the goods must be collected for transport to their final destination, and where they should be taken delivery of (i.e. who is responsible for loading and unloading goods);
- Which party must take responsibility for the goods during each phase of transportation (i.e. who bears the risk of loss).
Applying incoterms to sale and purchase contracts makes global trade easier and helps partners in different countries understand one another.
If you are considering buying goods from an international seller, or selling goods to the international marketplace, it is best to familiarise yourself with the most up to date incoterms. This will make sure that you are well equipped to negotiate the best available term for your sales contract.
NOTE: The ‘seller’ refers to the manufacturer or exporter of the goods, and the ‘buyer’ refers to the importer of the goods.
Do you have to use incoterms?
Incoterms are not mandatory and therefore not implied by default in an international sales contract. If a contractor wants to use them, the contractor must specifically include them in the contract.
Incoterms are revised periodically. The latest version is called Incoterms® 2020. All contracts made under Incoterms® 2010 (the previous version) remain valid. Although it is recommended to use Incoterms® 2020 (as it is the most up to date version), parties can agree to choose any version of the Incoterms rules. It is important, however, to clearly specify which version is used in the contract.
A summary of the main difference between the 2010 and 2020 incoterms is given here.
Figure 1 below summarises Incoterms® 2020 (click on the image to download a larger, printable version).