INCOTERMS (International Commercial Terms) are a set of three-letter standard trade terms most commonly used in international contracts for the sale of goods. It is essential that you are aware of your terms of trade prior to shipment.
There are 13 main terms and several secondary terms that denote the points at which shipper, carrier, and consignee risk and responsibility start and end.
The parties to the transaction select the Incoterms, which determine who pays the cost of each transportation segment, who is responsible for loading and unloading of goods, and who bears the risk of loss at any given point during an international shipment. Incoterms also influence customs valuation basis of imported merchandise.
The International Chamber of Commerce in Paris oversees and administers Incoterms, and they are adhered to by the major trading nations of the world. The ICC first published this set of international rules in 1936 as “INCOTERMS 1936.” Incoterms are amended every 10 years.
There are currently 13 Incoterms in use, and they are described below. Ex-works, Free on Board, Cost Insurance Freight, and Delivery Duty Paid are the most frequently used Incoterms.
Incoterms are recognized globally by courts and other authorities. Frequently, parties to a contract are unaware of the different trading practices in their respective countries. This lack of knowledge can lead to misunderstandings and disputes between customer and supplier. The incorporation of Incoterms in international sales contracts reduces this risk.