Within cross-border trade operations, Incoterms® play a critical role in allocating risk and responsibility, but their practical application often exposes gaps between contractual intent and operational execution.

When dealing with the Incoterms® rules in practice, there are a few considerations that traders should bear in mind. We will explore some of these here.

Type of commodity

When choosing an Incoterms® rule, businesses should consider the type of commodity being shipped and any restrictions that may apply. For example, some products cannot travel by air, such as oversized machinery or hazardous goods, which means certain Incoterms® would not be suitable, and vice versa, certain products, such as highly perishable or time-sensitive items, are not typically shipped via sea freight.

Additionally, four Incoterms® rules — FAS, FOB, CFR, and CIF (for sea and inland waterway) — apply to non-containerised goods, such as roll-on or roll-off goods, for example vehicles or industrial equipment on wheels. It is therefore important to choose the right Incoterms® rule for the right type of goods, the distance, and the mode of transport.

Title transfer

Another consideration is the title transfer, also referred to as the ownership of goods. Incoterms® are sometimes used by businesses as a risk transfer indicator for sales invoice creation and submission. For instance, under FCA, the company may raise a sales invoice on the customer once goods are collected by the transport company from the named place, or under DAP, once goods reach the customer’s named location or destination.

This practice is neither correct nor appropriate, as the transfer of title should be separately agreed upon between transaction parties in the sales contract, for example within the terms and conditions. Incoterms® do not define title or possession transfer, so businesses should be wary of this poor practice and ensure that ownership is clearly defined in the sales contract.

Regular trainings

Internationally traded businesses should conduct regular staff training to raise awareness around Incoterms®, including their correct application and the consequences of misuse, so that best practices are applied accordingly.

This is especially important for:
Sales, purchasing, and supply chain departments negotiating terms and conditions with customers and suppliers
Logistics administration staff who reference Incoterms® on shipping paperwork, such as commercial invoices
Customs and trade compliance professionals who must stay up to date with changes between Incoterms® versions
Warehouse operators who need to understand loading and unloading responsibilities and conduct risk assessments where necessary

Database checks

Database checks should be carried out where company ERP systems store Incoterms® information per customer or supplier. This practice helps ensure alignment between systems, customer and supplier contracts, and shipping documentation, so that terms are applied consistently and changes are captured accurately.

For deeper insight into Incoterms®, contractual risk allocation, and their interaction with customs and valuation rules, explore the full Exporters Guide here