Incoterms® as Strategic Contractual Clauses in International Trade
The Incoterms® (International Commercial Terms), developed and published by the International Chamber of Commerce (ICC), represent one of the most relevant instruments in contemporary international trade. Commonly indicated in commercial proposals or invitations to bid in the form of abbreviated acronyms — such as FOB, CIF, and DDP — their function goes beyond the delivery conditions of goods. In fact, they constitute standardized contractual clauses that define responsibilities, costs, and risks between seller and buyer, directly affecting price formation and risk allocation.
First published in 1936, the Incoterms® are updated in ten-year cycles, with the most recent version known as Incoterms® 2020. Recognized by the United Nations Commission on International Trade Law as the global standard for interpreting the most common terms in international trade, their primary function is to reduce the possibility of conflicting interpretations. They provide a standardization of international trade that, by specifying not only the delivery conditions of goods but also the moment of transfer of legal responsibility between seller and buyer, simplifies sales contracts and promotes greater legal certainty.
Thus, the Incoterms® can be understood as contractual formulas that precisely establish the rights and obligations of exporters and importers, clearly defining the meaning of the negotiated price between the parties. A mere reference to Incoterms® acronyms encompasses, beyond freight responsibility, aspects such as packaging, preparation and verification of documents, inspection, domestic shipment in the seller’s country, loading, customs duties, taxes, shipping fees, unloading, bank charges, and other contractual obligations. They also include the definition of responsibility for various stages of the operation, the assumption of physical and transport risks, and, consequently, the contracting of cargo insurance, as well as the currency used, demurrage, among others.
To illustrate the details of each term more clearly, an explanatory chart of Incoterms® 2020 follows below.
In this sense, choosing an Incoterm is not merely an operational decision, but a strategic supply chain choice, with a direct impact on profit margins, final prices, and global competitiveness. Understanding the determining factors for this choice enables the adoption of the most appropriate Incoterm®, maximizing the benefits arising from the international trade operation. On the other hand, the inadequate adoption of an Incoterm® rule, without due analysis of its impacts on risks, responsibilities, and costs, may lead to unintended negative consequences, such as delays in customs clearance, unexpected additional costs, and the assumption of risks beyond the freight forwarder’s control.
Therefore, in highly competitive and globalized markets, the added value of the Incoterms® constitutes an important differentiating factor in negotiation. As they are frequently present in commercial proposals and invitations to bid, Incoterms® are often accepted by the parties without proper reflection on their legal and economic implications. However, the simple acceptance of an Incoterm® previously indicated in a proposal binds the parties and limits future discussions during contractual negotiation.
Indeed, once the applicable Incoterm® is determined for the purchase and sale operation, it can be said that much of the contract has already been defined, since the term regulates key aspects of the operation, such as responsibilities for transport, insurance, customs costs, deadlines, and risks of loss or damage. Thus, the remaining space for negotiating ancillary contractual clauses becomes significantly reduced.
The choice of a specific Incoterm® rule as the basis for delivery in commercial transactions must, therefore, be treated as a strategic decision made under conditions of uncertainty and risk, reinforcing its importance in the context of business efforts to obtain and maintain a long-term competitive advantage.
Nevertheless, the decision-making process regarding the selection of Incoterm® rules remains an underexplored area. Often, the multiplicity and diversity of legal, financial, and even corporate governance factors involved in this choice are not properly considered.
Accordingly, the definition of the Incoterm® to be adopted must be treated as a strategic decision of logistical, legal-contractual, and economic nature, with significant impacts on pricing, logistics, and companies’ competitiveness in globalized markets. Its proper understanding therefore requires not only technical knowledge but also specialized legal analysis, capable of anticipating risks and ensuring contractual balance.
