ICC Incoterms

ICC Incoterms (International Commercial Terms) are a set of three-letter trade terms published by the International Chamber of Commerce that define the division of costs, responsibilities, and risk transfer points between seller and buyer in international contracts for the sale and delivery of goods. They are incorporated by reference in procurement documents and contracts whenever goods must be transported across international borders.

What are ICC Incoterms?

The current version, Incoterms 2020, contains 11 terms organized in two groups. Seven terms (EXW, FCA, CPT, CIP, DAP, DPU, DDP) apply to any mode of transport; four terms (FAS, FOB, CFR, cif) apply specifically to sea or inland waterway transport. Each term defines a precise delivery point at which cost and risk transfer from the seller to the buyer. EXW (Ex Works) places the minimum obligation on the seller; the buyer collects goods at the seller's premises and bears all subsequent cost and risk. DDP (Delivered Duty Paid) places the maximum obligation on the seller, who delivers goods cleared through customs at the buyer's named destination.

In procurement documents such as the schedule-of-requirements, the Incoterm used determines what the supplier must include in the unit price. A CIF price includes the cost of the goods, the freight to the destination port, and the insurance premium. A dap price includes delivery all the way to the named place. Evaluators compare bids on the same Incoterm basis; a supplier quoting FCA when the document requires DAP is not offering a comparable price and may be rejected.

Why ICC Incoterms matter for bidders

Choosing the wrong Incoterm when pricing a goods bid - or misunderstanding what costs the stated Incoterm includes - is one of the most common pricing errors in international procurement. Development banks specify the required Incoterm in the schedule of requirements or instructions to bidders, and bidders must quote on that basis. Failing to include freight, insurance, or local delivery costs because they assumed a different Incoterm applies will produce a loss-making contract if the bid is awarded at the incomplete price. For goods delivered to landlocked countries in Africa or Asia, the difference between CIF named port and DAP final delivery site can represent 10 to 25 percent of the goods value - a material error.

FAQ

Can a bidder propose a different Incoterm from the one specified?

No. The Incoterm specified in the bidding document is a requirement, not a suggestion. Offering goods on a different Incoterm basis is a material deviation that will render the bid non-responsive unless the document explicitly permits alternative Incoterm offers.

What is the difference between CIF and CIP?

Both terms require the seller to arrange and pay for freight and insurance, but CIF is limited to sea and inland waterway transport and requires minimum insurance coverage under Institute Cargo Clauses (C). CIP applies to any transport mode and requires the higher Institute Cargo Clauses (A) coverage under Incoterms 2020.

Where are Incoterms published?

Incoterms are published and trademarked by the International Chamber of Commerce. The current version is Incoterms 2020. The official publication contains the full text and explanatory guidance for each term and is available from ICC national committees and the ICC's website.