International Commercial Contracts - Incoterms

Incoterms and contracts

The International Chamber of Commerce (ICC) originally published the very first set of Incoterms in 1936. Since that first publication, they have been updated in 1953, 1967, 1980, 1990, 2000, 2010 and most recently in 2020. Incoterms 2020 came into force on in force 1 January 2020.

Why are Incoterms used in contracts?

Because Incoterms are standard definitions, they are used in contracts to reduce confusion and avoid traders having difficulty understanding the import requirements and shipping practice used in other countries.

Using the correct Incoterms clarifies the contracts you have with your suppliers or customers. 'Incoterms' is a protected ICC trade mark and only the original texts of Incoterms are to be considered as authoritative for incorporation into contracts. You should use the current version, Incoterms 2020, and note this in the contract. These terms should also be used on any paperwork linked to the contract, such as invoices or statements. Failing to state that you are using Incoterms 2020 could result in a dispute.

Most contracts from 1 January 2010 will refer to Incoterms 2010, unless the seller and the buyer agree to use an earlier version. Contracts dated before 1 January 2010 are still binding under Incoterms 2000. As of January 2020, the ICC recommends Incoterms 2020 are used.

The sales contract between the buyer and seller should also state which country's legal system will be used in case of a dispute. If both parties' countries are signed up to the UN Convention, this will provide the legal framework for settling the dispute. Incoterms will provide the legal backbone to settling the dispute.