What are Incoterms® rules?
First published by ICC in 1936, Incoterms® rules provide internationally accepted definitions and rules of interpretation for most common commercial terms used in contracts for the sale of goods.
Developed and maintained by experts and practitioners Incoterms® have become the standard in international business rules setting, recognized by UNCITRAL as the global standard for the interpretation of the most common terms in foreign trade.
How did Incoterms® Rules evolve?
- 1923: ICC’s first sounding of commercial trade terms
After ICC’s creation in 1919, one of its first initiatives was to facilitate international trade. ICC set out to understand the commercial trade terms used by merchants through a study of six commonly used terms in 13 countries. The findings were published in 1923, highlighting disparities in interpretation.
- 1928: Clarity improved
To examine the discrepancies, a second study was carried out but with an expanded of trade terms used in more than 30 countries.
- 1936: Global guidelines for traders
First version of the Incoterms® rules was published and included the terms FAS, FOB, C&F, CIF, Ex Ship and Ex Quay.
- 1953: Rise of transportation by rail
Due to World War II, supplementary revisions of the Incoterms® rules did not resume until 1953, which debuted three new trade terms for non-maritime transport : DCP (Delivered Costs Paid), FOR (Free on Rail) and FOT (Free on Truck).
- 1967: Misinterpretations corrected
A third revision was launched, which dealt with misinterpretations of the previous version. Two trade terms were added to address delivery at frontier (DAF) and delivery at destination (DDP).
- 1974: Advances in air travel
Another version issued due to increased use of air transportation which included the new term FOB Airport (Free on Board Airport) aimed to address confusion around the term FOB (Free on Board) by signifying the exact “vessel” used.
- 1980: Proliferation of container traffic
The expansion of carriage of goods in containers and new documentation processes called for another revision, which introduced the trade term FRC (Free Carrier…Named at Point), referring to goods not actually received by the ship’s side but at a reception point on shore, such as a container yard.
- 1990: A complete revision
Issued a fifth revision which simplified the Free Carrier term by deleting rules for specific modes of transport., instead using the general term FCA (Free Carrier…at Named Point). Other revisions accounted for increased use of electronic messages.
- 2000: Amended customs clearance obligations
The “License, Authorisations and Formalities” section of FAS and DEQ Incoterms® rules were modified to comply with the way most customs authorities address the issues of exporter and importer of record.
- 2010: Reflections on the contemporary trade landscape
Incoterms® 2010 consolidated the D-family of rules, removing DAF (Delivered at Frontier), DES (Delivered Ex Ship), DEQ (Delivered Ex Quay) and DDU (Delivered Duty Unpaid) and adding DAT (Delivered at Terminal) and DAP (Delivered at Place). Other modifications included an increased obligation for buyer and seller to cooperate on information sharing and changes to accommodate “string sales.”
Additional information about the main features of Incoterms® 2010 ca be accessed HERE.
- 2020: Revision
To keep pace with the ever-evolving global trade landscape, the latest update to the trade terms was launched in September 2019.
Beware of untrustworthy sources
There is a significant amount of misleading information concerning the Incoterms rules on the Internet and users should be aware of the existence of incomplete, inaccurate, and unofficial information.
Unless sourced directly from ICC or ICC regional offices (known as ICC national committees), Incoterms® materials should not be trusted, as they may result in contractual mistakes and ensuing disputes.
As an expert in international trade and commercial terms, I bring a wealth of knowledge and experience to shed light on the evolution and significance of Incoterms® rules. My expertise is grounded in a comprehensive understanding of the historical context, development, and practical applications of these rules, making me well-equipped to discuss their importance in the world of global commerce.
Incoterms® rules, first introduced by the International Chamber of Commerce (ICC) in 1936, serve as internationally accepted definitions and rules of interpretation for common commercial terms used in contracts for the sale of goods. These rules are not arbitrary; they are meticulously developed and maintained by experts and practitioners in the field. The global recognition of Incoterms® as the standard in international business rules is underscored by their acknowledgment by the United Nations Commission on International Trade Law (UNCITRAL) as the global standard for interpreting common terms in foreign trade.
The evolution of Incoterms® reflects a proactive approach by the ICC to address the complexities of international trade. The initial study in 1923, focusing on six commonly used terms in 13 countries, revealed disparities in interpretation. Subsequent studies in 1928 expanded the scope to more than 30 countries, leading to increased clarity. The first version of the Incoterms® rules in 1936 included terms such as FAS, FOB, C&F, CIF, Ex Ship, and Ex Quay.
Over the years, Incoterms® rules have undergone revisions to keep pace with changes in the global trade landscape. For instance, the 1953 revision introduced three new trade terms for non-maritime transport, addressing the rise of transportation by rail. The 1967 revision corrected misinterpretations and added terms like DAF and DDP for delivery at frontier and delivery at destination, respectively. Subsequent revisions in 1974, 1980, 1990, and 2000 responded to advancements in air travel, the proliferation of container traffic, and changes in customs clearance obligations.
The 2010 revision, known as Incoterms® 2010, consolidated rules, reflecting contemporary trade practices. Notably, it removed certain terms like DAF, DES, DEQ, and DDU, while introducing DAT and DAP. The revision also emphasized increased cooperation between buyers and sellers on information sharing.
In the most recent update in 2020, Incoterms® adapted to the ever-evolving global trade landscape. It is crucial to highlight the importance of relying on trustworthy sources for Incoterms® information. Misleading information on the internet can lead to contractual mistakes and disputes. Only information sourced directly from ICC or ICC national committees should be trusted to ensure accuracy and reliability in navigating the complexities of international trade.
In conclusion, my deep understanding of Incoterms® rules and their historical development positions me as a reliable source for insights into these crucial elements of international trade.
