Corporate and Business Law (Global) · Introduction to the UN Convention on Contracts for the International Sale of Goods and ICC Incoterms

ICC Incoterms Purpose and Structure Explained

Updated 11 October 2026 · Fact-checked

Incoterms are standard trade terms published by the International Chamber of Commerce. A sale contract can adopt them to set delivery, risk, costs and basic documents between seller and buyer. They do not transfer ownership, set the price or cover breach remedies. The rules are grouped into any-mode and sea-and-inland-waterway rules.

Understand ICC Incoterms Purpose and Structure

Incoterms are a set of standard trade terms published by the International Chamber of Commerce (ICC). Each rule has a three-letter code, such as EXW or FOB. Parties to a sale of goods put the code into their contract so they do not have to write long delivery terms themselves.

The rules answer a few practical questions between seller and buyer. Where does the seller deliver the goods? When does the risk of loss or damage pass to the buyer? Who pays for carriage, insurance and export or import clearance? Who must arrange them? Who must provide basic delivery documents or notices?

Incoterms are not law. They apply only if the parties choose them, usually by naming the rule, the place and the version, for example "FCA Rotterdam Incoterms 2020". The version you name matters, because rules change between editions. Naming the place matters too, because risk and cost often switch at that place.

Incoterms have limits. They do not decide when ownership (title) passes. They do not fix the price or the payment terms. They do not deal with breach of contract or the remedies for it. They do not govern the carriage contract itself, and they do not cover the effect of a dispute on jurisdiction. Those matters are left to the sale contract and the governing law, which may be the CISG.

The 2020 edition has eleven rules in two groups. Rules for any mode or modes of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Rules for sea and inland waterway transport only: FAS, FOB, CFR and CIF. The first group suits containers and multimodal carriage. The second group suits only goods carried wholly by sea or inland waterway, where the ship's side or the loading on board is the key point.

Key formulas to remember

Any mode of transport rules: EXW, FCA, CPT, CIP, DAP, DPU, DDP; Seven rules. They can be used for any transport, including containers, road, rail, air, or a mix of modes. They can also be used where a ship is involved.
Sea and inland waterway rules: FAS, FOB, CFR, CIF; Four rules. Use only where the goods are carried wholly by sea or inland waterway and the point of delivery is a port, quay or on board a vessel.
What Incoterms cover: Delivery + risk + costs + basic documents and notices; These are the core allocations between seller and buyer.
What Incoterms do not cover: Ownership, price and payment, breach and remedies, carriage contract terms; Anything outside delivery, risk, costs and documents needs to be dealt with by the sale contract or governing law.
Incorporation: Rule + named place + Incoterms 2020; Example: CIP Singapore Incoterms 2020. The parties must choose the rules, as they have no force on their own.

How to solve ICC Incoterms Purpose and Structure questions

Use this method for any question on the purpose and structure of Incoterms.

1Read the question and decide what is being tested: purpose, scope, grouping or a specific rule.
2Check whether the parties have actually incorporated Incoterms into the contract. If not, they do not apply on their own.
3Identify the matter in dispute: delivery, risk, cost, documents, ownership, price, breach or remedies.
4If it is ownership, price, payment or breach, state that Incoterms do not cover it and the sale contract or governing law decides.
5If it is delivery, risk, cost or documents, say Incoterms can allocate it, subject to the named rule and place.
6For grouping, check the transport mode. Sea-only rules need sea or inland waterway carriage; any-mode rules suit all modes.
7Match the code to its group using the lists, then choose the single best option.

Quickest way: Two-list sort and scope check

When to use it: Use this on Section A one-mark and two-mark questions where time is tight.

Memorise the short sea list: FAS, FOB, CFR, CIF. Any other code is an any-mode rule.
Ask: is the goods transport a container or mixed mode? If yes, a sea-only rule is a poor choice.
Ask: is the issue ownership, price or remedies? If yes, the answer is that Incoterms do not deal with it.
Eliminate options that say Incoterms are law or apply automatically.

Common mistakes in ICC Incoterms Purpose and Structure

Saying Incoterms transfer ownership of goods.
Students link delivery and risk with title because they often move together in practice.
Fix: Remember that Incoterms deal with delivery, risk and costs. Ownership depends on the contract and the applicable law.
Treating Incoterms as binding law that applies to every international sale.
They are widely used and look official.
Fix: They are contractual terms published by the ICC. They apply only if the parties incorporate them.
Putting FOB or CIF in the any-mode group.
Students know these terms are common and assume they suit all transport.
Fix: Learn the four sea and inland waterway rules as one list: FAS, FOB, CFR, CIF.
Assuming Incoterms cover price, payment and remedies for breach.
The word "terms" suggests a full contract.
Fix: Treat them as covering only delivery, risk, costs and documents. Other issues need express terms or governing law.
Ignoring the named place and version.
Students focus on the three-letter code only.
Fix: State that a proper reference includes the rule, the place and the edition, such as Incoterms 2020.

Worked examples

Example 1

A buyer in Kenya and a seller in Germany agree a sale of machinery on "FCA Hamburg Incoterms 2020". The goods will travel in a container by road and sea. A dispute arises about whether ownership has passed to the buyer. Does FCA decide the question?

Show the solution

Check incorporation: the parties named the rule, place and edition, so Incoterms 2020 apply.
Identify the issue: ownership of the goods.
Recall scope: Incoterms deal with delivery, risk, costs and documents. They do not deal with transfer of ownership.
Conclude that FCA does not decide the question. The sale contract and the governing law do.
Note that FCA is an any-mode rule, so it suits container carriage.

Answer: No. FCA allocates delivery, risk and costs, but it does not decide when ownership passes. That is a matter for the contract and the governing law.

Example 2

Classify each rule as any mode of transport or sea and inland waterway only: CIP, FOB, DAP, CFR. Then say which would be a poor choice for goods shipped in a sealed container to an inland destination.

Show the solution

Recall the sea and inland waterway list: FAS, FOB, CFR, CIF.
FOB and CFR are on that list, so they are sea and inland waterway rules.
CIP and DAP are not on that list, so they are any-mode rules.
For container goods going inland, the sea-only rules are a poor fit because delivery points are tied to the port or the ship.
So FOB and CFR are the poor choices; CIP and DAP are better.

Answer: CIP and DAP are any-mode rules. FOB and CFR are sea and inland waterway rules. FOB and CFR would be a poor choice for containerised inland carriage.

Exam tips

Learn the four sea-only codes and treat every other code as any-mode. It is quicker than learning both lists in full.
When you see ownership, title, price or remedies in a question, the likely answer is that Incoterms do not cover it.
Watch for options that say Incoterms apply automatically or are law. Those are wrong.
In multi-task questions, state the rule, the group and the reason in one sentence each, so you can earn each mark.
Check whether the question mentions containers or multimodal carriage. That points to any-mode rules.

Practice questions from Introduction to the UN Convention on Contracts for the International Sale of Goods and ICC Incoterms

ICC Incoterms Purpose and Structure: frequently asked questions

What are Incoterms 2020?

They are standard trade terms published by the ICC in 2020. Parties can include them in a sale contract to set delivery, risk, costs and basic documents. There are eleven rules in two groups.

Do Incoterms transfer ownership of goods?

No. Incoterms deal with delivery, risk and costs, not title. When ownership passes depends on the contract and the governing law.

What is the difference between any-mode and sea and inland waterway rules?

Any-mode rules suit all transport types, including containers and multimodal carriage. Sea and inland waterway rules suit goods carried wholly by sea or inland waterway. The sea group is FAS, FOB, CFR and CIF.

Do Incoterms apply automatically to international sales?

No. They apply only if the parties choose them in their contract. It is best to name the rule, the place and the edition.