Understand the Basics of Incoterms

Applied for the first time in 1936, the International Commercial Terms are a codified set of standard contractual provisions relating to the transport of goods. They are essential to know in the context of an import-export operation.

The Incoterms rules were created on the initiative of the International Chamber of Commerce (ICC). They determine the reciprocal obligations of the seller and the buyer, the distribution of transport costs, as well as the place of delivery which represents the point of transfer of risks from the seller to the buyer.

These rules are reviewed every 10 years to reflect the evolution of international trade practices. Since their creation, 8 versions have been updated, the last version took place in 2019 to define the new 2020 incoterms rules.

Their essential functions are:

  • To describe the obligations between the buyer and the seller, i.e. to define the “who does what” in terms of transport, insurance and customs,
  • To determine the place of delivery which represents the point of transfer of risk from the seller to the buyer, i.e. to what extent is the seller responsible for the risks incurred by the goods?
  • Describe the distribution of transportation costs.

The incoterm is a determining element of the customs value. As a reminder, the customs value is a free-at-frontier value (of the Union) and according to article 71 of the Customs Code of the Union (CDU), the transport and insurance costs, as well as the loading and handling costs are part of the price elements to be added to the customs value. It is therefore essential to become familiar with incoterms and to study your purchase invoices to verify the costs they include according to the incoterms negotiated in your purchase order contract.

The reform of incoterms 2020, requires to date 11 incoterms rules in force, divided into 2 categories:

  • Multimodal Incoterms are applicable to all modes of transport. They can also be used when the contract covers several modes of transport, which is notably the case when the goods are transported by container.
  • The maritime incoterms
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