Incoterms in the international sale and delivery of goods - how can they help?

The international sale of goods is very often associated with the use of Incoterms rules. What are they and why are they so helpful?

International Commercial Terms (Incoterms) are commercial rules that have been developed by the International Chamber of Commerce in Paris. They are widely recognized as the international standard for interpreting trade rules. The Incoterms rules are constantly updated in order to adapt to the pace of development of international trade.

Incoterms rules play a crucial role in outlining the various obligations of parties engaged in a transaction connected with delivery of goods. This includes the allocation of risk and responsibility for any accidental loss or damage to the goods during transportation, as well as expenses such as transportation costs, customs fees, and insurance. Rather than requiring complex and lengthy negotiations, these responsibilities are condensed into concise terms such as DAP, EXW, or DDP.

Among the Incoterms rules there are those applicable to all forms of transport, as well as those whose application will only make sense in the case of sea, water or inland waterway transport.

The Incoterms rules can be used both in international trade within the EU and outside the EU, but also in domestic trade. In trading practice, they are most often used in international sales contracts.

Although these rules do not replace the contract of sale and do not regulate all the issues necessary for this contract, they can be very helpful in the case of contracts related to the international supply of goods.

1. Incoterms facilitate trade for contractors from different countries subject to different legal aspects.

2. The use of Incoterms simplifies the formalization of legal relations between the parties. Instead of writing down a detailed document on the allocation of mutual obligations of the parties related to the transport of goods, the parties can use a short Incoterms rule and agree:

• who will be responsible for what;
• who bears the specified range of risks;
• who bears the costs.

3. Using the Incoterms allows the parties to enter into the contract provisions regarding the sale and delivery of goods, which are understood in the same way for all parties in the transaction. The practical value of the Incoterms is therefore to avoid the risk of possible misunderstandings as to the interpretation of certain contractual provisions. Incoterms are pure expression of the language of the international trade.

4. The use of Incoterms may be helpful in determining the place of performance of an obligation arising from the contract, which may be important from the point of view of determining the jurisdiction of the court competent to hear any dispute that may arise between the parties.

The current version of Incoterms is Incoterms© 2020, which include 11 rules.

Among them we can distinguish:

• Rules for all modes of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP.

• Rules for sea and inland waterway transport: FAS, FOB, CFR and CIF.

Yes. The Incoterms rules can be modified for your own use, but you should remember about the need to maintain precision when making such changes, so as to avoid possible interpretation doubts.

Although the use of Incoterms rules is not mandatory, referring to them may in many cases be advisable because of the possibility of simply defining the rules connected with the division of responsibility and risks related to the concluded contract. These rules may prove particularly helpful when the parties do not conclude an extensive written agreement in which they define their division of duties, but limit themselves to negotiating the terms of cooperation and their mutual acceptance.

Joanna Lubecka
attorney