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The history of Incoterms - Header.jpg

Introduction


Incoterms (International Commercial Terms) are standardized rules developed to clearly define the responsibilities of buyers and sellers in international trade. They set out who handles transportation, insurance, customs clearance, and the transfer of risk and cost at each stage of shipment.

First published in 1936 by the International Chamber of Commerce (ICC), Incoterms have been revised periodically to keep pace with the changing nature of global trade. Today, they are one of the most recognized standards in shipping and logistics.


Chronological Evolution


Year / VersionKey Changes & HighlightsNotes
1812First recorded use of "FOB" in English courtsConsidered a precursor to Incoterms
1936ICC publishes the first official Incoterms rulesIncluded FAS, FOB, C&F, CIF, Ex Ship, Ex Quay
1953First revision; terms for rail transport added"Free on Rail," "Free on Truck," "Delivered Costs Paid" introduced; EXW appears
1967Clarifications to remove ambiguitiesAdaptation to post-war trade growth
1976"FOB Airport" added for air transportRecognizing air freight as a growing mode
1980Adjusted for containerized and multimodal transportFRC/FCI evolved into FCA and CIP
1990Focus on multimodal transport and EDIIntegration of electronic data exchange
2000Customs and logistics procedures clarifiedSimplified and streamlined applications
2010Major overhaul: DAT and DAP introducedSome older terms removed
2020Current version: DAT replaced with DPU; CIP insurance coverage raisedIncreased digitalization, updated guidance notes

Objectives and Core Concepts


Objectives of Incoterms


  • Clearly allocate obligations between seller and buyer
  • Define the point where risk transfers from seller to buyer
  • Minimize disputes and misunderstandings in cross-border trade
  • Provide a universally accepted framework for shipping contracts

Core Concepts


  • Delivery: The point at which risk passes from seller to buyer
  • Carrier: The party responsible for transporting goods
  • Terminal: Any location where goods are transferred or unloaded (port, warehouse, container yard)
  • Insurance: Only compulsory under CIF and CIP terms

Key Changes in Incoterms 2020


  • DAT (Delivered at Terminal) removed; replaced with DPU (Delivered at Place Unloaded) to allow delivery at any location, not only terminals
  • CIP (Carriage and Insurance Paid To) now requires a higher (A-level) insurance cover compared to previous editions
  • Digital and electronic document usage encouraged
  • Each Incoterm now includes detailed "Guidance Notes" to simplify application

Incoterms 2020 Overview Table


TermTransport ModeSeller's Cost & Risk ResponsibilityHighlights
EXW (Ex Works)Any modeSeller's responsibility ends when goods are made available at their premisesBuyer bears all costs and risks
FCA (Free Carrier)Any modeSeller delivers goods to the carrier at a named placeRisk passes at delivery to carrier
CPT (Carriage Paid To)Any modeSeller pays freight to destination; risk transfers at handover to carrierFreight paid, risk passes earlier
CIP (Carriage & Insurance Paid To)Any modeSeller pays freight and insuranceA-level insurance required since 2020
DAP (Delivered At Place)Any modeSeller covers all costs up to named place; buyer handles import customsUnloading at buyer's cost
DPU (Delivered at Place Unloaded)Any modeSeller delivers and unloads goods at named placeReplaced DAT in 2020
DDP (Delivered Duty Paid)Any modeSeller covers all costs including import customsBuyer has no obligations
FAS (Free Alongside Ship)Sea/inland waterwaySeller places goods alongside the vesselLoading is buyer's responsibility
FOB (Free On Board)Sea/inland waterwaySeller delivers goods on board the vesselRisk transfers once loaded
CFR (Cost and Freight)Sea/inland waterwaySeller pays freight; risk transfers at loadingInsurance not included
CIF (Cost, Insurance & Freight)Sea/inland waterwaySeller pays freight and minimum insuranceRisk transfers at loading; buyer gets basic cover

Check all incoterms in our help page for more details.


Notes:


  • Sea-only terms (FAS, FOB, CFR, CIF) should not be used for containerized or multimodal shipments.
  • Customs clearance responsibilities vary; D-terms (DAP, DPU, DDP) place more obligations on the seller.
  • Insurance is mandatory only under CIF and CIP.

Future Outlook of Incoterms


  • New transport technologies: Drones, autonomous vehicles, and new multimodal systems may drive future revisions
  • Digitalization and security: Blockchain, IoT, and e-documentation will make Incoterms more transparent and traceable
  • Sustainability focus: Pressure to integrate environmental considerations and carbon reporting may shape future rules

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