Written by

In this article

Supply Chain Glossary
Published: 

INCOTERMS

What are INCOTERMS?

INCOTERMS, short for International Commercial Terms, are a set of standardized trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities and obligations of buyers and sellers in international trade transactions. They specify who is responsible for the costs, risks, and logistics involved in transporting goods from the seller to the buyer.

What is the purpose of INCOTERMS?

The primary purpose of INCOTERMS is to provide clarity and uniformity in international trade contracts by establishing common terms and definitions. By using INCOTERMS, parties can negotiate and agree upon the terms of sale with confidence, ensuring a clear understanding of each party's rights and responsibilities throughout the transaction.

The 10 most commonly used INCOTERMS

  1. EXW (Ex Works)
  2. FOB (Free on Board)
  3. CIF (Cost, Insurance, and Freight)
  4. DAT (Delivered at Terminal)
  5. DAP (Delivered at Place)
  6. FCA (Free Carrier)
  7. CFR (Cost and Freight)
  8. CPT (Carriage Paid To)
  9. DDP (Delivered Duty Paid)
  10. FAS (Free Alongside Ship)

Are INCOTERMS used for domestic shipments?

While INCOTERMS are primarily designed for international trade, they can also be used for domestic shipments within a country. However, their usage for domestic transactions is less common, as domestic trade often operates under different regulations and practices.

Are INCOTERMS legally binding?

INCOTERMS themselves are not legally binding contracts. However, they serve as valuable tools for drafting sales contracts and establishing the terms of sale between parties. The specific terms agreed upon using INCOTERMS become legally binding when included in a sales contract or purchase order.

In summary, INCOTERMS play a crucial role in international trade by standardizing terms of sale, reducing misunderstandings, and facilitating smoother transactions between buyers and sellers worldwide. Understanding and correctly applying INCOTERMS is essential for supply chain and logistics professionals to navigate the complexities of global commerce effectively.

How many languages are the INCOTERMS written in?

The INCOTERMS rules are available in multiple languages to accommodate users worldwide. The official languages of the ICC, including English, French, Spanish, Chinese, Russian, and Arabic, ensure accessibility and understanding for parties involved in international trade.