Just when you thought you’d heard it all about Incoterms – here’s something for true freight nerds.
Incoterms are a pretty well-known (albeit sometimes misunderstood) part of global trade. For those unaware, Incoterms® are a set of 11 individual rules issued by the International Chamber of Commerce (ICC) which define where the risks and responsibilities transfer from the sellers to buyers of goods in international transactions. Here is a good chart explaining how they work.
A lot of people assume this list is the be-all and end-all of Incoterms. But there’s more to it than that. The question is, are there really only 11 rules that sellers and buyers can use? It turns out we’ve found another myth worth busting.
First, many companies do not realize that Incoterms themselves are not necessary. And, they do not cover ownership or transfer of title. Incoterms rather state what basis the goods are sold on; FOB, DDP, CIF, etc. But, if an alternative term is used (e.g., LDP = Landed Duty Paid), then both parties just need to be clear on the definition and where risk and responsibility transfer.
In other words, go ahead and make up your own Incoterms if you want, you won’t be the first to do so! This is possible as long as the seller and buyer agree to the definition and where risk and responsibility lie. If one of the 11 Incoterms does not work in your situation, create the terms that you and the other party feel are appropriate.
Here’s a bonus Myth Buster: Incoterms are updated every ten years, with the most recent being 2020. If any Incoterms from past decades (e.g., 2010) work better, you can agree to use any of those “old” terms, too.