Incoterms – binding countries together in the aftermath of war

The Merchants of Peace

In the aftermath of WW1, there was a strong desire to re-establish a stable system of international trade across the globe. In 1919, a group of entrepreneurs, self-styled as “The Merchants of Peace”, decided to set up the International Chamber of Commerce (ICC) to promote a global standard and system of trading.

Part of the ICC’s early mission was to gain a better understanding of typical trade terms used by various countries. They conducted two surveys to analyse the differences in interpretation of such terms, first in 13 countries and then in 30 countries. In 1936, the findings of these studies led to the publication of a set of six jurisdiction-neutral trading rules which businesses could use to govern international sales of goods. This was the first version of the ICC’s ‘Incoterms rules’.

Specifically, the Incoterms describe (using simple internationally recognised three letter terms that can be incorporated in a contract) what the respective responsibilities of the seller and buyer are around the transport and delivery of goods, including the cost of transport, risk of damage in transit and insurance.

Developments in transport

Since their first publication, the ICC has maintained and updated the Incoterms rules periodically to reflect significant updates in commercial practice and innovations in technology.

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Following WW2, transportation of goods by rail had become more prevalent and it became necessary to include further rules to deal with this, including the “Free on Rail” and “Free on Truck” rules. Similar innovations in the use of air transport and containers to ship goods led to the introduction of the “Free on Board Airport” rule in 1974 and “Free Carrier… at Named Point” rule in 1980 respectively.

Into the 21st century…

Since then there have been changes to the Incoterms to address the increased use of electronic messages, and therefore added clauses to each rule allowing the parties to replace paper documentation with electronic versions, if agreed.

The ICC continues to update the Incoterms rules to reflect changes in commercial practice, with the latest version having recently come into force on 1 January 2020. A key driver behind these latest changes is to reflect increasing attention to security in the transportation of goods.

For more information or advice, please contact Steve Thomas on 01242 246 489 or at [email protected]