Incoterms are drawn up by the ICC (International Chamber of Commerce) and are revised approximately every ten years. The most recent version is Incoterms 2020. Incoterms are intended to facilitate and clarify international business transactions and to prevent misunderstandings.

Incoterms do not contain rules on transfer of ownership or payment. Incoterms regulate three essential topics in international sales agreements between buyer and seller, namely: who arranges and pays for which part of the transport, at what point does the risk transfer from seller to buyer, and who takes care of any customs formalities?

By including an Incoterm contractually in, for example, a purchase or sales agreement, distribution agreement, or General Terms and Conditions, the seller and buyer know who bears which responsibilities and costs and when the risk passes from the seller to the buyer.

Commonly used Incoterms

Of the 11 Incoterms, the most commonly used are:

• EXW (Ex Works)
  The seller delivers the goods to the buyer at the seller’s premises. The buyer arranges and pays for everything, such as transport, insurance, and import or export. The risk is transferred to the buyer upon delivery.
• FOB (Free On Board)
  The seller delivers the goods to the buyer on board the ship at the agreed port, after which the risk is transferred to the buyer.
• CIF (Cost, Insurance and Freight)
  The seller arranges and pays for the transport and insurance costs to the port of unloading, but the risk is transferred to the buyer upon shipment.
• DAP (Delivered At Place)
  The seller arranges and pays for the entire transport to an agreed location. The risk remains with the seller until delivery to the buyer.

Contractual effect and relationship to legislation

Including an Incoterm in an agreement is meaningless without also including a precise location (preferably with an address), for example EXW Veerkade 5c Rotterdam.

Incoterms are not legal rules, but standard contractual terms. This means that Incoterms only apply if the parties have expressly stipulated them. Without such a stipulation, national and/or international legal rules apply, such as the Civil Code or the Vienna Sales Convention.

The Dutch Civil Code (BW) contains general rules on sales agreements, but no special rules for international trade or transport. The BW allows a high degree of contractual freedom in sales and purchases and provides ample opportunities for individual contractual agreements. The BW has few or no rules on subjects such as transport, transfer of risk, or customs formalities. Under the BW (Article 7:9 BW), the risk in sales transfers at the moment the seller delivers the goods to the buyer. The Incoterms, on the other hand, determine very precisely when the risk transfers, and this is often earlier than the moment of delivery to the buyer.

Unlike Incoterms, the BW contains few or no provisions regarding transport in the case of sale, who is responsible for organizing it, and who bears the costs. Nor does the BW contain any provisions regarding who is responsible for import and/or export documents, permits, etc.

Practical benefits and recommendations

Incoterms are frequently used in international sales agreements, particularly when multimodal transport and customs formalities are involved. The use of Incoterms prevents potential conflicts regarding responsibilities, risks, and the transfer of risks. Incoterms are primarily intended for international trade, but can also be used for trade within the Netherlands.

It is important that the seller and buyer choose the correct Incoterm (and the correct version) and include it correctly in the sales agreement, including the place of delivery. This also applies to references to Incoterms in, for example, General Terms and Conditions. Prior legal advice can save internationally operating sellers and buyers a lot of headaches.