The importance of three capital letters – Incoterms

For the past 80 years, Incoterms® has been the cornerstone of global commercial trade, creating the basis for robust trade negotiations directly or indirectly involving sellers, buyers, shipping lines, truckers, forwarders, clearing agents, chambers of commerce, legal firms, courts, etc etc..

The history of the Incoterms® is quite interesting and below article from the International Chamber of Commerce highlights the importance of the Incoterms®..

You may also be interested in the various articles relating to Incoterms® which I have published on this blog..

Image for IncotermsICC Incoterms® rules: The mightiness of three capital letters

Who would have guessed that a collection of three-letter acronyms would have had such an impact on the development of international (and domestic) commercial transactions?

We can thank a group of industrialists, financiers and traders whose determination to bring economic prosperity to a post-World War I era eventually led to the founding of the International Chamber of Commerce (ICC).

With no global system of rules to govern trade, it was these businessmen who saw the opportunity to create an industry standard that would become known as the Incoterms® rules.

We journey through 80 years of milestones for the commercial trade terms that have transformed the global trade industry.

1923: ICC’s first sounding of commercial trade terms

After ICC’s creation in 1919, one of its first initiatives was to facilitate international trade. In the early 1920’s the world business organization set out to understand the commercial trade terms used by merchants. This was done through a study that was limited to six commonly used terms in just 13 countries. The findings were published in 1923, highlighting disparities in interpretation.

1928: Clarity improved

To examine the discrepancies identified in the initial survey, a second study was carried out. This time, the scope was expanded to the interpretation of trade terms used in more than 30 countries.

1936: Global guidelines for traders

Based on the findings of the studies, the first version of the Incoterms® rules was published. The terms included FAS, FOB, C&F, CIF, Ex Ship and Ex Quay.

1953: Rise of transportation by rail

Due to World War II, supplementary revisions of the Incoterms® rules were suspended and did not resume again until the 1950’s. The first revision of the Incoterms® rules was then issued in 1953. It debuted three new trade terms for non-maritime transport. The new rules comprised DCP (Delivered Costs Paid), FOR (Free on Rail) and FOT (Free on Truck).

1967: Misinterpretations corrected

ICC launched the third revision of the Incoterms® rules, which dealt with misinterpretations of the previous version. Two trade terms were added to address delivery at frontier (DAF) and delivery at destination (DDP).

1974: Advances in air travel

The increased use of air transportation gave cause for another version of the popular trade terms. This edition included the new term FOB Airport (Free on Board Airport). This rule aimed to allay confusion around the term FOB (Free on Board) by signifying the exact “vessel” used.

1980: Proliferation of container traffic

With the expansion of carriage of goods in containers and new documentation processes, came the need for another revision. This edition introduced the trade term FRC (Free Carrier…Named at Point), which provided for goods not actually received by the ship’s side but at a reception point on shore, such as a container yard.

1990: A complete revision

The fifth revision simplified the Free Carrier term by deleting rules for specific modes of transport (i.e., FOR; Free on Rail, FOT; Free on Truck, and FOB Airport; Free on Board Airport). It was considered sufficient to use the general term FCA (Free Carrier…at Named Point) instead. Other provisions accounted for increased use of electronic messages.

2000: Filling a gap in United States legislation

As a result of the removal of the 1941 definitions of the trade terms from the Uniform Commercial Code, the Incoterms® rules were able to fill the gap. Additionally, changes were made to the clause DEQ (Delivered Ex Quay) so that the seller was no longer responsible for arranging import clearance.

2010: Reflections on the contemporary trade landscape

Incoterms® 2010 is the most current edition of the rules to date. This version consolidated the D-family of rules, removing DAF (Delivered at Frontier), DES (Delivered Ex Ship), DEQ (Delivered Ex Quay) and DDU (Delivered Duty Unpaid) and adding DAT (Delivered at Terminal) and DAP (Delivered at Place). Other modifications included an increased obligation for buyer and seller to cooperate on information sharing and changes to accommodate “string sales.”

2020: Looking ahead

To keep pace with the ever evolving global trade landscape, the latest update to the trade terms is currently in progress and is set to be unveiled in 2020. The Incoterms® 2020 Drafting Group includes lawyers, traders and company representatives from around the world. The overall process will take two years as practical input on what works and what could possibly be improved will be collected from a range of Incoterms® rules users worldwide and studied.

ICC Incoterms® rules timeline

Interested in learning more about the ICC Incoterms® rules? Be sure to browse through all of our tools and references via the ICC Store .

6 thoughts on “The importance of three capital letters – Incoterms”

  1. Very well written and well compiled. Gives a good understanding and historic perspective from genesis till date.

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