Navigating the intricacies of importing and exporting may prove challenging without prior familiarity with the procedures. Nonetheless, there exists a structured framework known as Incoterms (International Commercial Terms), which can significantly streamline business transactions for both buyers and sellers, irrespective of whether they operate as corporate entities or individuals.

What Are Incoterms?

To help expedite the flow of commerce around the globe, the International Chamber of Commerce (ICC) formulated and published a set of Incoterms rules, which are a set of rules that can be utilized to make trade agreements and shipping contracts far easier to set up. The objective of the Incoterms rules is to clarify the responsibilities of both the seller and the buyer in international transactions, particularly regarding risks, tasks and associated costs at each stage of the transaction process. This framework establishes clear expectations for both parties regarding their respective roles and obligations.

The Incoterms rules serve as valuable tools for crafting trade agreements, applicable to both domestic and international contracts. They encompass eleven widely recognized three-letter trade terms, mirroring widely recognized business-to-business practices involving the sale and procurement of goods. Moreover, the Incoterms are categorized into rules tailored for various modes of transportation, including those for sea and inland waterway transport.

Can Incoterms be Used for Domestic Trade?

Domestic buyers and sellers who decide to use the Incoterms rules in their domestic transactions must exercise prudence when selecting the best Incoterms for their particular transaction. When used for a domestic transaction, some aspects of the different Incoterms rules will no longer be relevant to the transaction. For instance, in international transactions, various parties are responsible for customs clearance for imports and exports under the Incoterms rules. Depending on the selected Incoterm, a separate party will assume this task. In the context of domestic trade, given that the products have already entered the country, domestic shipping and transportation won’t need to take this into account.


However, domestic sellers and buyers must take note of the obligations that the Incoterms rules place on the parties. These can include the following: who bears the cost of the goods’ insurance; who chooses the carrier for the goods’ shipment; security measures to safeguard the items in transit; and the transfer of risk and responsibility.


Furthermore, the mode of transportation that is aligned with the Incoterm the domestic buyers and sellers select covers a significant aspect of the transaction. While certain Incoterms rules are limited to use in inland and maritime waterway transportations, others can be applied to all forms of transportation.


Incoterms Rules for Any Mode of Transportation:

There are seven Incoterms that can be utilized for any mode of transport, these include the following:

  1. EXW – Ex Works
  2. FCA – Free Carrier
  3. CPT – Carriage Paid To
  4. CIP – Carriage and Insurance Paid To
  5. DAP – Delivered at Place
  6. DPU – Delivered at Place Unloaded
  7. DDP – Delivered Duty Paid

Incoterms Rules for Any Sea and Inland Waterway Transportation

There are four Incoterms for sea and inland waterway transportation, which include the following:

  1. FAS – Free Alongside Ship
  2. FOB – Free on Board
  3. CFR – Cost and Freight
  4. CIF – Cost Insurance and Freight

What Can Be Established Using Incoterms?

The Incoterms rules delineate the responsibilities of both the seller and the buyer concerning logistics arrangements, insurance coverage, procurement of shipping documents, and acquisition of necessary export and import licenses for goods. Furthermore, the Incoterms rules facilitate the allocation of risks between the seller and the buyer. For instance, they specify the location and timing of delivery, thereby determining the point at which the risk transfers from the buyer to the seller.

Additionally, the Incoterms rules address the allocation of costs between the parties involved. This encompasses various expenses such as packaging, transportation, loading and unloading charges, as well as security-related costs.

What Can’t Be Established Using Incoterms?

The Incoterms rules are not intended to replace the sales contract between parties. Rather, they are designed to accurately reflect trade practices across various product categories. The following matters should not be covered by the use of Incoterms: whether a contract of sale exists at all; the specifics of the goods being sold; the time, location, mode, or currency of payment of the price; the different remedies that may be available in the event of a breach of sale; the impact of sanctions; the imposition of tariffs; import and export restrictions; force majeure; intellectual property rights; or any method, venue, or law of dispute resolution in the event of a breach of sale.

One of the most significant areas which is not covered, is that the Incoterms rules do not deal with the transfer of title/property/ownership of the goods that are being sold. These are areas for which the parties involved in the transaction will need to make specific provision for within their contract of sale.

Why Should You Use Incoterms for Your Business Transactions?

Incoterms mitigate uncertainties stemming from language barriers and currency disparities, thus establishing a standardized framework for international trade. This universal language ensures clarity and facilitates smooth transactions, as all involved parties are well-informed about the available options, courtesy of the widespread acceptance of the Incoterms rules.

For any further questions relating to which Incoterm will suit your commercial transaction, visit us at

About the author

Daniel Castling-Bolt
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