Incoterms: Key Takeaways & Important Things to Remember

Incoterms were developed to eliminate inconsistencies in language by providing standardized definitions for commonly used trade terms within agreements. Although they are agreed upon between the buyer and seller, they establish clarity for all parties involved by defining responsibility for costs, obligations, and risk throughout a shipment.

Incorporating Incoterms into contracts and clearly displaying them on commercial documents can help reduce ambiguity and improve consistency across transactions.

There are currently 11 distinct Incoterms. Of these, 7 apply to any mode of transport, while 4 are specific to sea and inland waterway transport.

It is important to note that the terms designed for sea and inland waterway transport are generally not recommended for containerized cargo. Reviewing the explanatory notes—particularly those related to mode of transport—can help determine the most appropriate option for a given shipment profile.

While domestic trade may follow other frameworks (such as the Uniform Commercial Code in the United States), Incoterms are widely adopted as the global standard.

Many organizations choose to apply a consistent set of Incoterms across both international and domestic transactions to simplify internal processes. However, when used domestically, certain elements, such as import/export clearance responsibilities, may not apply.

Once an Incoterm has been selected, it is important to avoid modifying or altering it. Adjusting standard terms to fit a specific situation can introduce ambiguity, especially if all stakeholders do not share the same interpretation.

Maintaining the integrity of the original Incoterm helps ensure that all parties—including freight forwarders, carriers, and Customs brokers—understand and execute their roles consistently.

Incoterms are aligned to the contract rather than the physical movement of cargo. When a shipment moves from party A to party B, the contract reflects that relationship, and the selected Incoterm applies accordingly. Introducing a third party can create complexity and reduce clarity.

For example, if party B has a contract with party A using the FCA Incoterm, but then sells to party C under DAP terms while instructing party A to ship directly to party C, it becomes unclear which Incoterm governs the movement from party A to party C.

In these situations, rather than relying on Incoterms, it may be more effective to clearly define expectations with the vendor through detailed instructions. This can include specifying delivery points, documentation requirements, and handling instructions to avoid ambiguity.