International Commercial Terms
Incoterms, more commonly known as “terms of delivery” and an acronym for International Commercial Terms, are international rules regarding the interpretation of the terms of delivery of cargo goods, as used in the international sale of merchandise.
They were initially codified by the International Chamber of Commerce in Paris in 1936, based on clauses commonly used in international trade at the time. Since then, Incoterms® have been periodically revised to align them as closely as possible with international transactions as these evolve.
The most recent revisions were introduced in 2010 and in 2020 and more precisely, following a three year period of complex preparatory work. The latest update of the Incoterms® Rules was issued in the second half of 2019 and came into effect on 1st January 2020, the year of the ICC’s Centenary between Australia and Italy.
They identify the allocation of transport costs.
Incoterms® primarily serve to identify who, between the seller and the buyer, bears the costs of transporting the goods from one place to another, the costs associated with insurance, as well as the export and import customs charges.
It should be emphasised that they do not relate to the contract of carriage, but to the contract of sale, nor do they regulate all the obligations accepted by the parties regarding a sale, but only to the terms relating to the delivery of goods. Therefore, it is important to understand that they do not concern the transfer of ownership and other rights over the goods, but merely determine how and where the delivery of the goods takes place, i.e. the exact moment of transfer of the risks from the seller to the buyer for the goods being transported. The transfer of ownership of the goods takes place according to the rules laid down by the laws applicable to the contract, whereby a distinction must be made between two operative applications, i.e. either where physical delivery of the goods is required, or where an agreement between the parties will suffice.
They regulate the obligations relating to the delivery of goods by univocally identifying the moment of transfer of the risks and responsibilities from the seller to the buyer.
By identifying the time when delivery of the goods takes place, Incoterms® also identify when the seller’s liability for the goods ceases and the buyer's liability begins and, likewise, when the risks of deterioration and loss pass from the seller to the buyer.
Liability, risks and costs thus go hand in hand in the blueprint designed by Incoterms®. However, further clarification is necessary: if Incoterms® are not part of the contract of carriage but only the contract of sale, then they are intended to have a binding effect only in the context of the relationship between seller and buyer, not also in the relationship between these parties and the carrier.
Nevertheless, it is natural that Incoterms will also give exact instructions to the carrier so that there is cohesion between the contract of carriage and the contract of sale. As an example, the carrier will not accept instructions received from the seller on how to forward air or sea freight where the Incoterms are stated as EXW.
The terms should be expressly referred to and in a binding form.
As to the nature of Incoterms®, it should also be made clear that they do not constitute rules in any way comparable to judicially applicable Laws, whether national or international, but they are exclusive of a contractual nature. They should be considered as optional rules that the parties may choose to adopt. Recourse to them is therefore not mandatory. They are not directly binding and are only effective if they are incorporated into the contract of sale by being expressly referred to.
It is also important to note that Incoterms® should preferably be cited according to the strict
indications issued by the International Chamber of Commerce, by using the following scheme: ‘Incoterms® Clause + Agreed Place+ Incoterms® Edition’; e.g. ‘FOB Leghorn Incoterms® 2020’.
They are also a taxonomy, this means that the terms used are those and only those indicated by the International Chamber of Commerce, which has registered the Incoterms® trademark, making them a definitive reference point for all parties (e.g. importers, exporters, lawyers, carriers, banks and insurers) that operate in the international trade marketplace.
Clarity of interpretation
This does not however mean, that the parties cannot agree on a term of surrender that differs from those listed by the ICC. On the contrary, in practice parties often adopt the rules listed by the ICC to their own needs.
The implications and risks of any form of adaptation are obvious. As we have said, Incoterms® clearly identify the allocation of liability and risk between the parties regarding the international sale of goods.
In the event of a dispute, the judge called upon to decide the case will not be able to rely on the limits declared by the parties to determine the precise place of delivery and therefore the moment when the risks of loss of and damage to the goods are passed on, nor who is obliged to conclude the contract of carriage and the insurance contract, or who is liable for payment of duties, or who is to pay the charges for obtaining licences and authorisations, the distribution of the costs arising from the carriage, or even determining if the court has indeed jurisdiction to decide the dispute. Rather, the court will have to analyse the documents and interpret the will of the parties, taking into account all aspects of the case, where conclusions may even be deduced from the actual demeanour and behaviour of the parties, and where conclusions may be drawn that is perhaps contrary to what the parties had stated.
Operative suggestions for the parties
From all the above, it is possible to glean various important operative suggestions for the parties
involved: do not deviate from the ICC’s Incoterms® and, on the contrary, quote them expressly, faithfully reproducing them, avoiding generic indications such as ‘ex works’ and, once the term of delivery to be adopted has been established, avoid contradictions in correspondence, in the invoices or
in any deed as this may lead to nullifying the original agreement of its meaning and the univocal
terminology offered by Incoterms®.
Autor: Francesca Savia
Operations and Compliance Manager
Savitransport – HQ Florence