What do Incoterms primarily define?

Incoterms, or International Commercial Terms, primarily define the allocation of costs and the transfer of risks associated with the transportation of goods in international trade. They serve as a standardized set of rules that clarify the responsibilities of buyers and sellers in relation to delivery, insurance, and various logistical aspects of trade. By specifying at which point the responsibility for the goods shifts from the seller to the buyer, Incoterms help both parties understand their obligations and reduce the risk of disputes.

This framework helps in determining who pays for freight, insurance, tariffs, and other logistical expenses, ensuring that all parties are aware of their financial responsibilities throughout the shipping process. By outlining these essential elements, Incoterms significantly enhance clarity in international contracts, fostering smoother transactions between parties from different countries.

The focus of Incoterms is not on defining legal rights in contracts, the transfer of ownership of goods, or penalties for breaches, making them a crucial tool specifically for managing costs and risks.