Incoterms is short for "International Commercial Terms" and are standard trade definitions devised and published by the International Chamber of Commerce (ICC). These terms are used in international sales contracts to clearly establish the basis on which the seller will invoice the buyer for goods supplied. Their use in sales contracts act as a form of legal shorthand to clearly identify the responsibilities of both parties.

The ICC introduced the first version of Incoterms in 1936. Since then, ICC expert lawyers and trade practitioners have updated them six times, the most recent being in the year 2010.

Why use Incoterms in International Trade?
  • The correct use of Incoterms provides the legal certainty upon which mutual confidence between business partners can be based.
  • Incoterms are an internationally recognised code that makes it easier for traders in different countries to conduct business with one another.
  • Incoterms define the buyer's and seller's responsibility for arranging and paying for transportation, documentation, custom's clearance and transport insurance.
Incoterms Outlined
There are 11 different Incoterms in terms of the 2010 rules. They have been grouped into 2 categories:

Rules for any mode or modes of transport
  • EXW - Ex Works
  • FCA - Free Carrier
  • CPT - Carriage Paid To
  • DAP - Delivered At Place
  • DDP - Delivered Duty Paid
  • DAT - Delivered At Terminal
  • CIP - Carriage and Insurance Paid To
Rules for sea and inland waterway transport
  • FOB - Free On Board
  • CFR - Cost and Freight
  • FAS - Free Alongside Ship
  • CIF - Cost Insurance and Freight
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Where to get more information on Incoterms
All companies involved in international trade should possess a copy of the ICC's handbook on Incoterms 2010. A copy of the handbook can be purchased from the ICC via their website.

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