The Incoterms® Rules – what are they and how do they work?
The Incoterms® Rules (‘Incoterms’) are a standardised set of international contractual terms developed by the International Chamber of Commerce which can be included in contracts for the Sale of Goods.
The current version came into effect on 1 January 2020, although older versions can still be used.
Depending on the nature of the contract, the Incoterms can be useful in helping the parties to identify the obligations, costs and risks involved in performing the contract.
The Incoterms are intended to remove uncertainties and prevent disputes from arising by providing a single set of rules which are interpreted in the same way in different countries.
Set out below are a number of answers to commonly asked questions regarding the Incoterms and how they operate.
What do the Incoterms cover?
The Incoterms provide certain key terms which can be incorporated into a sales contract. However, they are not in themselves a sales contract, so they do not provide the entire contract between the parties. A contract should always be drafted to properly document the whole agreement, incorporating the Incoterms where desired.
Examples of the terms that the Incoterms provide include:-
- Which party should cover the costs of insurance;
- At what point risk (i.e. the responsibility for damaged or lost goods) passes to the buyer;
- Which party should cover the transportation costs; and
- Which party is to deal with the importing or exporting formalities as required.
However, as stated above, the Incoterms are not a complete contractual document, and the parties should always properly consider and document their agreed commercial terms such as the price, payment terms for the goods themselves, when title (ownership) passes, and liability in the event of a breach of contract since the Incoterms do not address these aspects.
The Incoterms also do not address governing law or which legal jurisdiction will have authority to hear a claim arising from a dispute between the parties, and these matters will be an important inclusion in to the contract for greater certainty in the event of a dispute arising.
How many different sets of Incoterms rules are there?
In the latest edition, the Incoterms® 2020, there are 11 different sets of rules that can be selected by the parties. The majority of these sets of rules can apply to goods being sent via any mode of carriage (i.e. air, land or sea), but a few are only applicable when goods are sent by sea or waterway.
When choosing which set of Incoterms to apply to a contract, the parties should therefore review and consider which set of rules best reflects their requirements before incorporating them into the contract.
The Incoterms rules for any modes of transport are:
- EXW – Ex Works
- FCA – Free Carrier
- CPT – Carriage Paid To
- CIP – Carriage and Insurance Paid To
- DAP – Delivered at Place
- DPU – Delivered at Place Unloaded
- DDP – Delivered Duty Paid
The four sets of Incoterms rules for sea and inland waterway transport are:
- FAS – Free Alongside Ship
- FOB – Free on Board
- CFR – Cost and Freight
- CIF – Cost Insurance and Freight
When specifying the above in a contract, each of the above will be followed by the place of delivery / place of destination / port of loading / port of destination (as appropriate).
Are Incoterms mandatory?
The use of Incoterms is entirely voluntary, although they are common practice in international trading agreements as they are internationally recognised.
Can Incoterms be varied?
If any specific Incoterms rule does not properly reflect the agreement between the parties, the Incoterms can be varied and tailored to specific circumstances. For example, if an Incoterm states that the seller is responsible to pay import costs, but the parties have agreed the buyer should be the one to pay, this could be expressly varied in a contract between the parties.
A party who wishes to vary the Incoterms in their contract should ensure that the variation does not affect or introduce uncertainty to other terms of the contract, and taking legal advice on any such contract is always recommended before signing.
If you have any questions about contents of this article or how we could help you or your business, please contact Mark Chapman or Cesare McArdle on 01276 686222 or via email: mark.chapman@herrington-carmichael.com or Cesare.Mcardle@herrington-carmichael.com.
This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.
FREE: Legal Insights and Event News
Keep you, your family and / or business up to date on how the law affects you, by subscribing to one of our legal insights.

Subscribe for free Legal Insights
& Event updates
Latest News & Insights
How can we remove a director from office?
This is a question we are frequently asked, and the answer will differ depending on the...
Dispute Resolution: Is a deposit always non-refundable?
Frequently disputes occur regarding deposits and whether they are refundable if a purchase does...
Removal of Unnecessary Information – will Companies House Amend the Register?
The Companies Act 2006 (‘CA 2006’) provides a mechanism for the correction or removal of documents...
Commercial Contracts – why can’t I recover all my loss?
The basic position is that if Party A fails to comply with its obligations under a contract with...
Business rates on the high street – what the Budget means for you
On 3 March 2021, the Chancellor announced key steps the country will take on the road to recovery...
The Trade and Cooperation Agreement: Is it all just smoke and mirrors?
With the Brexit transition period having expired over 2 months ago and a UK-EU Trade Agreement...
Top Legal Insights
Contract Law
Material Breach of Contract
What is a ‘material’ breach of contract by a party to a commercial contract? This is a critical issue regularly considered by the courts. What constitutes a material breach and what are the remedies?
Property Law
Commercial Lease: The Financial impact on Landlord and Tenant
Coronavirus (COVID-19) and the restrictions now in place to control its spread, are having a significant effect on many business sectors.
Divorce and Family Law
Divorce in Lockdown: Can I get some discreet legal advice?
We have spoken to clients who are unfortunately experiencing some family issues, and would like to obtain expert legal advice, yet don’t know how...
Land & Property Dispute
Restrictive Covenants – The Price of Modification
Having identified that your land is burdened by a restrictive covenant and for the purposes of this article the covenant in question will be that only one residential building can be erected on the land. What do you do next?
Award winning legal advice
We are solicitors in Camberley, Wokingham and London. In 2019, Herrington Carmichael won ‘Property Law Firm of the Year’ at the Thames Valley Business Magazines Property Awards, ‘Best Medium Sized Business’ at the Surrey Heath Business Awards and we were named IR Global’s ‘Member of the Year’. We are ranked as a Leading Firm 2020 by Legal 500 and Alistair McArthur is ranked in Chambers 2020.









London
60 St Martins Lane, Covent Garden, London WC2N 4JS
Camberley
Building 2 Watchmoor Park, Riverside Way, Camberley, Surrey GU15 3YL
Wokingham (Appointment only)
4 The Courtyard, Denmark Street, Wokingham, Berkshire RG40 2AZ
info@herrington-carmichael.com
© 2020 Herrington Carmichael LLP. Registered in England and Wales company number OC322293.
Herrington Carmichael LLP is authorised and regulated by the Solicitors Regulation Authority.
Privacy | Legal Notices, T&Cs, Complaints Resolution | Cookies | Client Feedback