Variants Of Incoterms: Leave Them Alone

As per the most recent publication by the ICC Incoterms 2020, there are 11 official Incoterms, dividend into four groups. Incoterms, acronym for International Commercial Terms, are, in essence, rules of interpretation. Incoterms provide internationally accepted interpretation for the use of certain trade terms. These latter are domestic clauses derived from mercantile customs.

In practice, exporters and importers can use whatever clause they want, and the ICC itself acknowledges the use of variants from the official Incoterms. However, parties that adopt clauses that depart from the ones included in the ICC publication must know that, in case of dispute, they cannot rely on the standard interpretation provided by ICC’s Incoterms 2020.

Variants of Incoterms

What Are Variants Of Incoterms

A variant of Incoterms is any trade term that deviates from the official 11 Incoterms 2020.

There are several types variants of Incoterms. Almost all of them derive from custom, and their usage is due to the willingness of the parties to continue to use such trade terms notwithstanding what has been published by the ICC.

Some variants may differ completely from the Incoterms wording: such is the case of Free Domicile, a trade term that has essentially the same meaning as DDP Delivered Duty Paid Incoterms 2020.

Other variants start with an Incoterm, and then add a word expressing a certain obligation. Some of the most common include:

  • FOB “stowed”: the seller is responsible for onboarding the goods so that they can be safely transported (i.e. to avoid damage)
  • CIF “landed”: the seller is also responsible for offloading the goods at the port of arrival
  • CIF “insurance war”: in this case the minimum insurance that the seller must provide includes also damages in the event of war, which is not the case under CIF Cost, Insurance and Freight Incoterms 2020
  • DAP “cleared”: the seller is responsible also for import clearance, which is specifically excluded from the original DAP Delivered At Place Incoterms 2020
  • EXW “loaded”: the seller must load the goods on the carrier sent by the buyer; under the original EXW Ex Works Incoterms 2020, the sellers must only place the goods at the disposal of the buyer

Other types of variants look like the official Incoterms in their wording, but are completely made up. This is the case of C&I Cost and Insurance, or CIFCI Cost, Insurance, Freight, Commission and Interest.

Should You Use Variants Of Incoterms?

The problem with international sale contracts is that, in case of dispute, the parties have to deal with different legal systems. Although trade terms could be similar and used in both countries, their interpretation may be different. The risk for the parties is that their risks and obligations under their domestic legal systems may not be what they thought.

The whole point of Incoterms is to harmonize the interpretation of selected trade terms worldwide.

If an exports company sells under DAP Incoterms 2020, it knows it will not be required to provide import clearance. If an import company buys under DPU, he knows the seller will be responsible for offloading. This occurs irrespective of how domestic courts might have interpreted the trade terms DAP or DPU.

The ICC acknowledges that there are variants of Incoterms that are being used in international trade, but it does not provide any guidance on how to interpret those rules.

The parties are free to use any trade term, but, if that is not one of the official Incoterms, they are left alone in case of dispute.

Since international commerce runs on legal certainty, merchants should leave alone variants of Incoterms, and stick to the official 11 Incoterms.

Globartis Research

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