What are Incoterms?

If you are involved at all in the transportation supply chain, you should know the basics of Incoterms to help you better understand the industry and process in which you are working. Use our blog post to learn what Incoterms are and start adding to your importing knowledge now!

What Are Incoterms?

Incoterms stands for “International Commercial Terms,” and encompasses much of the verbiage used in the process of transporting goods internationally. The International Chamber of Commerce has a set of trade terms published by them to aid in communication throughout international and global trade processes. Most commonly, an Incoterm is a specific action or process between two parties during a trade, typically the importer and exporter to define the responsibility of each party.

Why Are Incoterms Used?

The International Chamber of Commerce established Incoterms to minimize miscommunication and mitigate conflict or disruption between different parties involved in a trade. Because international trade deals with various customs processes, the laws of more than one country at once and often language barriers, having common terminology across all these bridges makes for a smoother, more efficient shipping process. Most importantly, Incoterms define how exactly the different parties share obligations and responsibilities throughout the transportation process.

How Often are Incoterms Updated?

The International Chamber of Commerce updates the Incoterms annually. This frequency helps the ICC to stay on top of trends in the market as well as observe where there may be gaps in the verbiage and allow them to find a solution within a set amount of time.

What Parts of a Trade Are Covered by Incoterms?

Incoterms are specific to four parts of a trade:

  1. Delivery– In a delivery, the seller of the cargo will reach an agreement with a buyer for the final delivery, which puts an end to the seller’s role.
  2. Transportation– Incoterms help to define exactly what the role of each party is in the movement of the cargo and assigning responsibility of costs as well.
  3. Documentation and formalities– Incoterms clearly define which party is responsible for customs paperwork, export and importation documents, and duty paperwork.
  4. Insurance– Because of Incoterms, ownership of who is responsible for insuring the transportation process is plainly defined.

What Are the Most Recent Incoterms?

The ICC’s 2020 Incoterms detail the meaning of 11 terms used in the industry. Those terms are Ex Works (EXW), Free Carrier (FCA), Carriage Paid To (CPT), Carriage Insurance Paid To (CIP), Delivered At Place (DAP), Delivered at Place Unloaded (DPU), Delivered Duty Paid (DDP), Free Alongside Ship (FAS), Free On Board (FOB), Cost And Freight (CFR) and Cost, Insurance, and Freight (CIF).

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If you’re in need of international shipping services, LogiWorld has you covered. With more than two decades of experience, our staff has the knowledge and skills needed to handle your transport smoothly. Contact us today for a free quote on your international shipment!

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