Incoterms are a set of rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts. They are published by the International Chamber of Commerce (ICC) and are widely used in commercial transactions.
History of Incoterms:
Since 1939, Incoterms, have been accepted by traders and governments worldwide to explain important terms such as insurance, or risk of loss. The CISG has been interpreted to incorporate these provisions. Hence, in a case in which a business is sold to an American buyer, medical equipment got damaged during transport. Under the Incoterms, an American Court found that the seller was responsible for paying the cost of freight and insurance coverage. He did everything necessary to bring the goods to the designated port. Even though the title to the equipment did not change until full payment by the buyer, the court found that the risk of loss was passed on to the buyer. Thus, the buyer was obligated to pay the full agreed upon sale price. He also paid the buyer’s insurance company for the damaged equipment.
When the parties intend to incorporate Incoterms into a contract for sale, it is important to make an express reference and, if possible, to the specific version of the Incoterms.
Practice Tip: Specify who is responsible for 1) Transportation to the port; 2) Who has the risk of loss between the port and final destination; and 3) Indicate specifically who is responsible for clearing a medical device through customs, as the obligation under Incoterms is usually that the party domiciled in the country where such clearance is to take place has the responsibility.