Incoterms
International Chamber of Commerce rules that allocate costs, risks and formalities of an international sale between seller and buyer, and say who must insure the goods and from when.
Incoterms are rules published by the International Chamber of Commerce since 1936, revised periodically, whose current version dates from 2020. Each term, designated by three letters, sets the point at which the risk of loss or damage passes from seller to buyer, the allocation of transport and customs costs, and documentary obligations. They govern neither transfer of ownership nor price, which belong to the sale contract. For transport insurance they are decisive, because they say who bears the risk at each stage and therefore who has an interest in insuring. Two terms expressly require the seller to take out insurance for the buyer's benefit: under CIF, for sea transport, minimum cover corresponding to the most restrictive market clauses; under CIP, since 2020, all risks cover. Under the other terms, insurance is left to the party bearing the risk, which must make sure it is not left uncovered between two transfers. A buyer purchasing CIF often discovers, at the time of a loss, that the minimum cover obtained by its seller does not cover the damage suffered.
Hypothetical case: an importer buys machinery CIF under Incoterms 2020, for which the seller took out the minimum cover, corresponding to Institute Cargo Clauses C. The machinery arrives damaged by seawater during handling, with no major casualty to the vessel: C cover does not cover this damage, whereas A cover would have, and the importer bears the loss for not having bought additional cover.
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