Notes on using Incoterms you need to know

It’s common for people to make mistakes when studying, learning, and applying Incoterms. This is because they often only read the main conditions without paying attention to the usage notes about Incoterms. As a result, people may forget to specify the applicable Incoterms version in their contracts, which can cause problems. So, it is very important to pay attention when using Incoterms in contracts. Below are 6 notes to be aware of when applying Incoterms you need to know. 

Incoterms are not laws 

Incoterms are a set of rules in international trade, but these rules are not mandatory. Parties are not obligated to adhere to Incoterms unless they choose to use Incoterms in the contract. 

Incoterms only bind the obligations and responsibilities of the parties when the seller and the buyer agree to use the rules in Incoterms, as stipulated in the contract. 

In addition, Incoterms only specify and explain issues related to the delivery of goods. For example, who is responsible for arranging transportation, purchasing insurance, agreeing on delivery times, costs, etc 

Regarding issues such as storage, warehouse handling, pricing, payment methods, etc., they depend on the contractual terms between the parties; Incoterms do not regulate or bind these matters.

Readmore: What are Incoterms and the history of the Incoterms rules?

The validity of previous versions

Incoterms 2020 is the latest official version, preceding which there were 08 other versions issued in 1936, 1953 (amended in 1967 and 1976), 1980, 1990, 2000, and 2010. 

To learn more about the various Incoterms versions, see more

what are incoterms

Incoterm Timeline Infographic (Source

The subsequent versions of Incoterms do not invalidate the effectiveness of the previous versions. Therefore, when using Incoterms, it is essential to specify which version applies to facilitate reference and determination of the responsibilities and obligations of the parties involved. 

If a contract does not explicitly mention the applicable version of Incoterms, it can lead to confusion during the process of cross-referencing and verifying the validity of the terms stipulated in the contract. 

Accurate reference to the Incoterms rule 

As mentioned, the Incoterms have many versions and their validity is not denied. Therefore, when applying the Incoterms rule to the contract, it is necessary to specify in the contract the following rules: 

[Selected condition, venue name, Incoterms 2010]
Example: “CIF, Hai Phong, Vietnam Incoterms 2020” 

incoterms 2020 risk transfer

Point of delivery and transfer of risk in Incoterms 2020

Incoterms only determine the time of transfer goods risk 

When applicable, the parties should know that the Incoterms only determine the time of transfer of the risk of goods from the buyer to the seller, the Incoterms do not determine the time of transfer of ownership of the goods, the consequences of breach of contract.  

These issues are usually stipulated in other clauses of the contract or the law governing the contract.

Legal value

The validity of a contract in addition to Incoterms also depends on the laws of the country, territory or locality of the parties.  

The applicable local law may invalidate any aspect of the contract, including previously selected Incoterms. Therefore, the parties need to study and comply with local laws during the execution of the contract of sale. 

Scope of use 

Depending on by which means the goods are transported (air, sea, land, etc.), what type (bulk cargo, containers, barges, etc.) will have corresponding groups of conditions and be selected by the parties. 

It can be said that the Incoterms code has brought positive effects on international trade activities. It provides buyers and sellers with international customs and rules that can be referred to and applied uniformly when negotiating and performing contracts.  

However, understanding the Incoterms and notes when using them is extremely necessary, so as not to affect the process of negotiating and conducting international commercial transactions.

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