You Might Be Thinking…

“Incoterms are just a formality handled by freight companies.”
Not true. Incoterms determine the moment risk transfers, who pays for transport, insurance, and customs duties. A poorly chosen clause can cost tens of thousands.

Clients Often Ask Me…

• What exactly is the difference between EXW, FOB, CIF, and DDP?

• When does the risk lie with the carrier, seller, or buyer?

• Do I have to arrange insurance, or is it only mandatory sometimes?

• Do Incoterms apply even if they’re not mentioned in the contract?

• Which clause is safest for me as a buyer?

Legal Framework in Brief

• Incoterms are not law but an international standard published by the ICC (International Chamber of Commerce).

• Once parties refer to them in the contract, they become binding.

• It is crucial to state the clause + year of issue (e.g., Incoterms 2020).

• They define:

  • the place of delivery,

  • the moment of risk transfer,

  • who pays transport, insurance, and customs duties.

Overview of Common Clauses

• EXW (Ex Works)
  Buyer picks up the goods at the seller’s premises. Risk and costs pass to the buyer immediately.

• FOB (Free On Board)
  Seller delivers goods on board the ship; risk passes when the goods are loaded.

• CIF (Cost, Insurance and Freight)
  Seller pays transport and insurance to the port of destination, but risk passes upon loading.

• DAP (Delivered At Place)
  Seller delivers goods to the place of destination; risk transfers upon delivery.

• DDP (Delivered Duty Paid)
  Seller bears maximum obligations – pays transport, customs, and VAT. Risk transfers upon delivery.

How to Proceed in Practice

1. Choose the Right Clause

• Buyer → safer with DAP or DDP.

• Seller → often prefers EXW or FOB.

2. Record the Clause Precisely

• Example: “EXW Brno, Czech Republic, Incoterms 2020.”

3. Cover the Details

• Transport insurance.

• Delivery deadlines.

• Customs clearance obligations.

Risks and Common Mistakes

• Not stating the Incoterms year → different versions have different rules.

• Vague wording like “transport arranged by seller” → legally unclear.

• No agreement on insurance → buyer may bear the loss.

• Misusing clauses → e.g., CIF is risky for buyers as risk transfers at loading.

Lawyer’s Checklist

✔ Choose a clause based on your bargaining position.
✔ Always add the year (e.g., Incoterms 2020).
✔ Clarify insurance and customs clearance.
✔ Ensure the clause matches your logistics (sea, air, truck).

FAQ

Do Incoterms apply automatically?
No, they must be expressly mentioned in the contract.

What if no year is stated?
The latest version is usually applied, but disputes arise.

Can I modify a clause?
Yes, but modifications must be clear and in writing.

Which clause is safest for buyers?
DDP – but sellers often resist due to high costs.