Do you know what Incoterms are? This set of rules is extremely important in international purchase and sale contracts and is part of the customs broker’s work routine.
In addition to establishing responsibilities and obligations between importers and exporters, these rules help to standardize foreign trade operations on a global scale.
This ensures that the clauses of the contracts are clear and understood by all parties involved.
Are you curious to know more? Keep reading and find out what Incoterms are, why they are important and what their main categories are. Enjoy!
What are Incoterms?
Incoterms, an acronym that in English means International Commercial Terms, are a set of rules created to facilitate purchase and sale negotiations between importers and exporters .
They serve to clearly define the rights and obligations of both parties involved in the contract.
These internationally standardized rules address essential issues such as: who will be responsible for shipping costs, how the goods will be delivered and who should take out insurance, among other points.
Created by the International Chamber of Commerce (ICC) in 1936, Incoterms have undergone several updates over time, keeping up with changes in global trade. The most recent version, currently in force, is from 2020.
These rules are fundamental in any operation involving international cargo transportation.
They ensure that the contract is structured according to standardized terms, allowing all responsibilities and combinations to be described clearly and objectively.
By detailing the obligations and rights of both the buyer and the seller, Incoterms determine the level of responsibility of each party at each stage of the transportation of the goods.
This includes defining who should resolve any problems that may arise during the process.
However, it is worth highlighting that Incoterms apply exclusively to the main parties to the negotiation: the importer and the exporter.
Other professionals involved in foreign trade, such as customs brokers and transport companies, are not directly covered by these rules.
What is the importance of Incoterms?
Imagine transporting goods internationally without clear and standardized rules: the process would be extremely complex and full of conflicts. It is precisely to avoid these problems that Incoterms were created.
These terms and rules are widely recognized on a global scale, ensuring that there are no misunderstandings during negotiations.
Once the responsibilities of each party are defined, the costs involved in each stage of transportation come into play.
In this context, Incoterms help to align expectations between importers and exporters, making everyone aware of the details of the agreement.
Another relevant point is that Incoterms clearly specify the responsibilities throughout the transportation of goods. In this way, each party involved knows exactly what their obligations are, which are duly recorded in the contract.
One of the great benefits of these rules is that they eliminate the need to specify in detail all the clauses of the contract, which could generate doubts and errors of interpretation.
With Incoterms, each code represents a specific type of agreement, which simplifies the process and ensures clarity in negotiation.
Incoterms: 2020 table
The latest version of Incoterms was released worldwide in September 2019 and came into force on January 1, 2020. This update brought changes to the types of Incoterms applied to international negotiations.
Below, check out what defines the responsibilities of each party in a commercial transaction:
- EXW – Ex Works – At Origin (specified place of delivery);
- FCA – Free Carrier – Free from the Carrier (delivery location specified);
- FAS – Free Alongside Ship – Free Alongside the Ship (specified port of embarkation);
- FOB – Free On Board – Free on Board (specified port of shipment);
- CPT – Carriage Paid To – Carriage Paid To (specified destination);
- CIP – Carriage and Insurance Paid To – Carriage and Insurance Paid To (specified destination);
- CFR – Cost and Freight – Cost and Freight (specified port of destination);
- CIF – Cost, Insurance and Freight – Cost, Insurance and Freight (specified port of destination);
- DAP – Delivered at Place – Delivered at the Location (specified destination location);
- DPU – Delivered at Place Unloaded – Delivered at Place Unloaded (specified destination location);
- DDP – Delivered Duty Paid – Delivered Duty Paid (specified destination).
It is worth noting that there is no Incoterms 2025 version. The most up-to-date revision continues to be Incoterms 2020, which remains valid to this day, including in the year 2025.
Intercoterms: what is each category?
Incoterms are organized into 4 categories, identified by the first letter of their acronyms.
Each category has specific characteristics and the sales condition is always formed by the Incoterm + the location, which defines where the responsibilities of each party involved in the negotiation begin.
Check out the categories below:
Category E
This category includes EXW (Ex Works), which refers to departure. In this case, the importer assumes all costs and risks of transportation from the origin.
From the moment the goods are delivered to the importer, he becomes responsible for the entire process, including transportation and insurance. EXW can be used for any type of transportation.
Category F
Here, the exporter’s liability ends before international transport. Therefore, he does not need to pay for freight or international insurance. The three Incoterms in this category are:
- FCA (Free Carrier);
- FAS (Free Alongside Ship);
- FOB (Free On Board).
The main difference between them is when the exporter’s responsibility ends.
For example, FOB is one of the most commonly used: the exporter is responsible until the goods are placed on board the ship for transportation. After that, the importer assumes the risks and costs.
Category C
The Incoterms of this class determine that the exporter pays the costs of international freight. They are:
- CFR (Cost and Freight);
- CIF (Cost, Insurance and Freight);
- CPT (Carriage Paid To);
- CIP (Carriage and Insurance Paid To).
The difference between them is the insurance. In CFR, for example, the exporter pays the freight, but the importer is responsible for the insurance. In CIF, the exporter pays both the freight and the insurance up to the destination.
Category D
Deals with the arrival of the goods at their final destination and generally places more responsibility on the exporter. Incoterms in this category include:
- DAP (Delivered at Place);
- DPU (Delivered at Place Unloaded);
- DDP (Delivered Duty Paid);
The most common are DAP and DDP:
- In DAP, the exporter pays the costs and assumes the risks of transportation until the product reaches its destination. However, the importer is responsible for customs clearance of the import;
- In DDP, the exporter is responsible for everything: freight, risks, import taxes and transportation to the final destination. The importer only takes care of unloading the goods.
Therefore, these categories organize the Incoterms in a simple and practical way, making it clear who is responsible for each stage of the international transport process.
How can Incoterms affect imports and exports?
Incoterms play a key role in international trade as they provide a standardized set of rules that buyers and sellers must follow when trading between countries.
These rules set out clear guidelines regarding costs, insurance responsibilities and the transfer of ownership of goods.
Because they are widely accepted worldwide, Incoterms make international trade operations simpler and more efficient.
Additionally, they benefit importers and exporters by allowing them to choose and negotiate the process that best meets their needs.
However, as there are several options available, having the support of a customs broker can be a great solution to avoid errors and optimize the process.
The main objective of Incoterms is to simplify the stages of foreign trade and avoid problems for the parties involved. Therefore, understanding international operations and the terms governing transactions is essential for successful negotiations.
When will Incoterms be updated?
In general, Incoterms are revised every 10 years. The most recent update was in 2020, with previous versions released in 2010 and 2000.
Thus, the next review is likely to take place around 2030, unless significant changes arise before then.
Meet Dux Logistics
Now that we have explained what Incoterms means, it is important to emphasize that we make it happen in each specific sector! With Dux, you have control over the means of transport and logistics in an efficient and practical way.
With offices and warehouses in Brazil, the United States and France, as well as storage operations around the world, Dux grows and consolidates itself based on one goal: taking a step forward, every day.
Need a custom strategy?
Talk to our experts, after all, our solutions are customizable and meet your company’s logistical demands from end to end!