Incoterms

International Commercial Terms, or Incoterms, first published in 1936 by the International Chamber of Commerce to promote standardized terminology for international trade.
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Definition

International Commercial Terms (Incoterms) are standardized terms published by the International Chamber of Commerce (ICC) in 1936 to clarify the responsibilities of buyers and sellers in international transactions. These terms, which are updated periodically, provide clear rules for shipping, risk, and responsibilities between buyers and sellers in international trade contracts. The most recent version was updated in 2020.

Examples

  • EXW (Ex Works): The seller makes the goods available at their premises, and the buyer is responsible for all costs and risks involved in transporting the goods to the final destination.
  • FOB (Free On Board): The seller delivers goods on board a ship chosen by the buyer. The risk transfers to the buyer once the goods are on board.
  • CIF (Cost, Insurance, and Freight): The seller covers the cost, insurance, and freight to bring the goods to the port of destination. Risk transfers to the buyer once the goods are on board the ship at the port of shipment.
  • DAP (Delivered at Place): The seller delivers when the goods are placed at the disposal of the buyer at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.

Frequently Asked Questions

  1. What are Incoterms used for?

    • Incoterms are used to define the responsibilities of buyers and sellers in international transactions, mainly focusing on shipping, risks, and costs.

  2. Who publishes Incoterms?

    • The International Chamber of Commerce (ICC) publishes Incoterms.

  3. How often are Incoterms updated?

    • Incoterms are updated periodically to reflect the evolving practices in international trade and shipping. The most recent update was in 2020.

  4. Do Incoterms cover all aspects of a trade agreement?

    • No, Incoterms primarily address the delivery of goods, the transfer of risks, and the allocation of costs between the buyer and seller. Other aspects like payment terms and warranties are covered separately.

  5. How many Incoterms are there?

    • As of the 2020 update, there are 11 Incoterms.
  • Bill of Lading: A document issued by a carrier that details a shipment of merchandise and gives title of that shipment to a specified party.
  • Freight Forwarder: A person or company that arranges the transport of goods on behalf of exporters/importers.
  • Letter of Credit: A letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount.
  • Tariff: A tax or duty to be paid on a particular class of imports or exports.

Online Resources

Suggested Books for Further Studies

  • “Incoterms® 2020 by the International Chamber of Commerce (ICC)” - by ICC
  • “Global Supply Chain Law and Compliance: A Practical Guide” - by Robert J.n. Mehta
  • “Understanding International Trade: Theory and Policy” - by Paul Krugman and Maurice Obstfeld

Fundamentals of Incoterms: International Business Basics Quiz

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Thank you for exploring the intricacies of Incoterms and testing your knowledge with our comprehensive quiz. Understanding these terms is crucial for success in international trade!

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