What are Incoterms Used in Import and Export?

Every day the number one question people new to the import and export of goods ask me: “What are Incoterms?”

So What are Incoterms Really?

Incoterms are a range of three-letter trade terms that are standard to the Freight Forwarding and Customs Clearing industry. Incoterms regulate the import and export of goods across the world.

The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of the most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretations of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide. It is not advisable to veer away from what is described within the Incoterms when drawing up import and export contracts.

First published in 1936, the Incoterms rules have been periodically updated, with the eighth version – Incoterms 2010 – having been published on January 1, 2011. “Incoterms” is a registered trademark of the ICC and the use of this term for any other reason than the description given above is completely disallowed.

How do Incoterms relate to the import and export of goods?

The import and export of goods are usually connected to a business transaction between two or more parties. As in any other business transaction, parties carry different liabilities during the transaction. For instance, if a bottle of cola breaks in a store, it’s the store’s responsibility. But if that same bottle falls to the ground and breaks right after you left the store with it in your shopping bag, it’s your responsibility as the buyer.

This is a very simplistic example and common sense as to who would be liable for the loss. With the import and export of goods, however, it’s not that easy.

There are several stages to the import and export of cargo and with each stage, someone is responsible for that cargo. This is what is being governed by the Incoterms. If cargo is in a warehouse waiting to be taken to the docks for export, it’s someone else’s responsibility than the person responsible while the cargo is loaded off the ship or plane. To ensure that there are no misunderstandings as to who takes responsibility for what and at what stage during the process, Incoterms were introduced.

For a complete list of all the Incoterms and a description of each, visit the Incoterms page on our website.