The International Chamber of Commerce created Incoterms to codify and standardise the clarification of cost, risk, and the various obligations of buyers and sellers performing international commercial transactions. Incoterms are internationally accepted trading codes defining the responsibilities of both importers and exporters concerning the arrangement of shipments and the transfer of liability entailed at various phases in the journey of freight. Practically every foreign purchase or sale references Incoterms. The definitions of Incoterms have been established since 1936, but modifications have occurred frequently ever since. The ubiquity and standardisation represented Incoterms affords several advantages:
- Agreement on respective shipping responsibilities can be rapidly established between parties who are familiar with Incoterms. Incoterms abbreviate the shipping negotiation process so can be used as a form of shorthand.
- The convenience of using standardised trading terms simplifies international business.
- Most internationally experienced companies have at least a functional knowledge of the Incoterms that are relevant to them and preferred.
- Incoterms and the conventions they represent embody the orthodoxy of practical international shipping.
Currently, there are 13 Incoterms, and these are divisible into four categories (E, F, C, and D).