Since their inception in 1936, the International Commercial Terms (Incoterms® rules) have been amended by the International Chamber of Commerce (ICC) eight times (1953, 1967, 1976, 1980, 1990, 2000, 2010 and 2020).

The amendments are generally to ensure that the terms keep up to date with trade developments and common practices. Since the last revision in 2010, much has changed in global trade and, for UK/EU companies especially, uncertainty about future trading agreements means contract terms must be resilient and effective to minimise disruption to trade. It was deemed necessary to up-date the 2010 terms to take into account the trend of closer alignment on trade within certain regions (eg ASEAN region, Eurasian Economic Union, etc), the increased use of electronic communications in business transactions and changes in transport practices. It is the changes in these areas, including greater supply chain security, that has made the 2020 set necessary.

The Incoterms® rules are translated into over 80 different languages.

The seller should (in agreement with their buyer) use one of the Incoterms® 2020 rules from the 11 suggested terms in all international contracts. By selecting an appropriate Incoterms® rule, both parties are then clear about their obligations in terms of:

  • delivery — the point at which delivery of the goods is taken to have been legally achieved is clearly stated

  • risk — it defines a specific point at which the risk of loss or damage of the goods and the actions pertaining to that risk transfers from the seller to the buyer

  • costs — by having a clearly defined delivery point the seller knows what transport-related costs are their responsibility and can therefore build up a selling price accurately, and the buyer knows which costs they must pay directly to transport companies or customs authorities, etc

  • obligations — each term states the seller’s and buyer’s obligations in respect to the delivery of goods, eg preparation of export documents

  • transportation — some terms relate only to the movement of goods by sea (or inland waterways if applicable) and do not protect the seller if the goods are exported via another mode of transport

  • who is responsible for supply chain security measures.

The Incoterms® rules cannot be supported in law unless the term is included and accepted in the contract of sale; therefore it is important to ensure that where the Incoterms® rules are incorporated into a contract a reference is always made to the date of the version applicable. This will avoid disputes.

It is also important that the Incoterms® rule is as specific as possible. For, say, export from the UK, it should be written similarly to the following.

  • FCA London Heathrow Airport (Incoterms 2020 Rules).

  • CIP New York Airport (Incoterms 2020 Rules).

Now, more than ever, making sure the right year is shown is vitally important.

Why so many options? There are many different types of international transactions in the world, from vessels of grain awaiting a buyer on the commodity market, to a jiffy bag containing an integrated circuit (IC); from a full power station to be dismantled and transported to a distant country, to a few boxes of consumer goods being sold to a distributor overseas.

It is unlikely that many exporters or buyers will use more than four of these terms on a regular basis in their international sales, and a company should have a policy that is clear to sales staff to avoid agreeing to terms that are inappropriate to their business.

The division into four groups has remained the same; these groups follow the movement of goods:

  • Group E — to the exporter’s premises

  • Group F — to the export point (airport/seaport, etc)

  • Group C — to the import point overseas (airport, seaport, etc)

  • Group D — delivered into the overseas buyer’s country at the exporter’s cost and risk.

Choosing Incoterms — Workflow

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