Incoterms are three-letter trade rules published by the International Chamber of Commerce (ICC) that define the place of delivery, the moment risk passes, the division of costs and customs obligations between seller and buyer. The current Incoterms® 2020 edition contains 11 rules. The rules become binding on the parties when they are expressly written into the sales contract.
What do Incoterms govern and what do they not?
An Incoterms rule answers four questions in a sales contract: where the goods are delivered, at what moment risk passes to the buyer, who pays for carriage and other costs, and who handles export and import customs. The rules were first published in 1936; comprehensive revisions were made in 2000, 2010 and 2020. Incoterms® 2020 entered into force on 1 January 2020. The ICC has launched the revision process for Incoterms® 2030.
The rules do not govern when ownership passes, the method of payment, the conformity of the goods or the consequences of breach of contract. The terms of the contract of carriage also fall outside Incoterms; the freight contract is concluded separately.
Why do they matter?
The meaning of the same price quotation changes with the delivery term. Between "USD 800 per tonne EXW" and "USD 800 per tonne DDP" there are differences in freight, insurance, customs duties and risk. If a common rule is not written down, the parties interpret the terms according to the customs of their own countries, and disputes arise. Incoterms are also used as a reference in letters of credit, insurance and customs value calculations.
A brief summary of the 11 rules
| Rule | Mode of transport | When does risk pass? |
|---|---|---|
| EXW – Ex Works | All modes | When the goods are placed at the buyer's disposal at the seller's premises |
| FCA – Free Carrier | All modes | When the goods are delivered to the buyer's carrier |
| CPT – Carriage Paid To | All modes | On delivery to the first carrier; the seller pays the freight |
| CIP – Carriage and Insurance Paid To | All modes | On delivery to the first carrier; the seller takes out insurance with ICC (A) cover |
| DAP – Delivered at Place | All modes | When the goods are placed at the buyer's disposal at the destination, ready for unloading |
| DPU – Delivered at Place Unloaded | All modes | When the goods are unloaded at the destination |
| DDP – Delivered Duty Paid | All modes | At the destination; import duties and taxes are borne by the seller |
| FAS – Free Alongside Ship | Sea / inland waterway | When the goods are placed alongside the ship |
| FOB – Free on Board | Sea / inland waterway | When the goods are loaded on board the ship |
| CFR – Cost and Freight | Sea / inland waterway | When the goods are loaded on board the ship; freight is borne by the seller |
| CIF – Cost, Insurance and Freight | Sea / inland waterway | When the goods are loaded on board the ship; the seller takes out insurance with ICC (C) cover |
How the rules are grouped under the letters E, F, C and D is explained in the entry on Incoterms groups; the point in the C rules where risk passes at delivery but costs are split at destination is explained in the entry on when risk passes.
Who publishes the rules?
Incoterms® is a registered trademark of the ICC, and the texts of the rules are published by the ICC. In Türkiye, the ICC Turkish National Committee handles the Turkish translation of these publications and the related training. The rules are not law; they apply when the parties incorporate them into the contract. That is why, even while the 2020 edition is in force, the parties may choose Incoterms 2010 in their contract if they wish.
How are they written into a contract?
Correct wording consists of three elements: the rule, a place as precise as possible, and the edition. Example: "FCA Tarsus OSB, Mersin, Türkiye Incoterms® 2020" or "CIF Port of Novorossiysk Incoterms® 2020". Writing only "CIF Russia" leaves it unclear up to which port the freight is paid. Detailed examples are in the entry on how to write Incoterms into a contract.
Common mistakes
- Using FOB or CIF for container cargo; in these cases FCA or CIP is more appropriate.
- Not aligning where loading and unloading costs are split with the contract of carriage; see loading and unloading costs.
- Accepting DDP without checking whether the seller is able to pay duties and taxes in the buyer's country.
- Writing only a country or city name as the place of delivery; the point at which risk passes remains unclear.
How does Voltim Global help?
Within regulatory consultancy, Voltim Global compares the delivery term chosen at the quotation stage with the transport plan and the customs and insurance obligations. In the more than 5,000 shipments carried out since 2014, it has worked with different rules, from EXW to DDP.