An Incoterm is an international trade rule from the International Chamber of Commerce that allocates transport, costs, and risk in cross-border deliveries. In our practice, we see that entrepreneurs often carelessly copy Incoterms from standard texts. A wrong choice leads to disputes regarding who pays for damage in transit, insurance, or customs formalities. A conscious choice protects your margin and prevents surprises with every shipment.
What is the legal issue?
Incoterms do not regulate everything. They determine cost allocation, transfer of risk, and customs obligations, but not transfer of ownership, payment, or applicable law. An incorrectly chosen Incoterm extends your risk into a country over which you have no control. Furthermore, the Incoterm must align with your insurance and logistics setup. Incorrect application regularly leads to disputes when damage occurs in transit, at customs, or upon delivery.
What does the law say?
Incoterms are ICC trade rules, not laws. They apply only upon explicit reference in the contract. The current version is Incoterms 2020, with eleven terms divided into two groups: for all modes of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and for sea and inland waterway transport (FAS, FOB, CFR, CIF). In sales contracts, the Vienna Sales Convention or Article 7:9 of the Dutch Civil Code often applies additionally.
Regarding the transfer of risk, Article 67 of the CISG refers to the agreements between the parties — Incoterms give concrete substance to this. Under Dutch law, Article 7:11 of the Civil Code governs the risk of damage to goods from the moment of delivery, unless otherwise agreed.
What risks do companies face?
With EXW, the seller often still bears export and VAT responsibility in practice that he cannot fulfill. With DDP, the seller bears all import and VAT risks in the destination country without local registration. Choosing the wrong Incoterm leads to cost overruns, insurance gaps, and liability for customs fines. Combining an Incoterm with incompatible payment terms makes it even more complex.
Practical example from our practice
We advised a Dutch exporter who opted for DDP to Brazil without local VAT registration. The goods were held at customs because the exporter could not pay the Brazilian import taxes. The buyer claimed compensation for the delay. Upon renegotiation, we chose DAP (Delivered at Place): the recipient handles the import, while the customs risk lies with the buyer. The client structurally avoided approximately €180,000 in customs issues annually.
What can you do?
Choose Incoterms based on who knows the transport and customs chain best. Always state the place of delivery and the version (Incoterms 2020). Combine the Incoterm with appropriate payment terms and insurance. For container transport: choose FCA instead of FOB. For deliveries where you do not have a local customs broker: avoid DDP. Have your standard Incoterm choice assessed per market. See also our article on The legal consequences of EXW, FOB, and DDP.