Incoterms® are used to specify which party arranges for the payment and handling of goods during shipping, from origin to destination.
Incoterms are terms of sale that define who arranges for the payment and handling of the goods during shipping, from the moment the goods leave the seller’s (the manufacturer’s) door up until their arrival at the buyer’s final destination.
"Incoterms®" is shorthand for "International Commercial Terms" as defined by the International Chamber of Commerce.
Incoterms do:
- Define the obligations and costs between the seller and the buyer. Incoterms create common and relatively precise understanding of the respective operational obligations and costs between a seller and a buyer relating to the delivery of the buyer’s goods.
- Define the point of passage of risk between the buyer and seller regarding cargo loss or damage.
- Provide instructions to carriers, forwarders, customs brokers, and others involved in shipping your goods, as well as banks and others involved in financing.
Incoterms don’t:
- Cover ownership/passage of title. Passage of title should be separately defined via a "retention of title" clause within the sales contract.
- Cover payment. Terms of payment for the goods are negotiated separately.
- Cover insurance. Only CIF (Cost, Insurance and Freight) and CIP (Carriage and Insurance Paid) specifically outline insurance as the seller’s responsibility. Other terms do not outline who has this responsibility.