Firstly, transport. Goods can be moved using variety modes of transport such as vessel, truck, barge, airplane and train. Regardless of the modes of transport, the inherent factor here is cost.
Secondly, safety of the goods or cargo. The goods, while waiting to be loaded on the carrying vehicle or while in transit may be exposed to the risks of damage or loss to the goods.
In some cases, the goods are required by the regulations of the exporting or importing country where pre-inspection must be carried out to ensure compliance and conformity. Besides, it is customary that custom clearance must be obtained by both, importer as well as exporter. That means custom duty is to be incurred.
All these duties, obligations and costs may form ground for disputes between buyer and seller of different countries as there bound to be trade practice differences, political policies differences, restriction on foreign currencies and other uncontrollable trade limitations.
Therefore, it is imperative that a uniform understanding should be established to enhance the process of trade between trading parties of different countries. This understanding should be able to be applied internationally regardless of geographical locations. Finally, it should form a rule where it is binding on all parties involved in international trade, particularly buyer and seller. Henceforth, International Commercial Terms or INCOTERM comes into picture.
INCOTERMS expressly spells out clear guidelines on the distributions of risks and costs between buyer and seller. The obligations of each party are also expressly stated as to how the delivery should be made by the seller, who should arrange for transportation, who should bear the costs of insurance, transportation, import and export duties and so on. This rule is specifically applicable to the sales contract between the buyer and the seller. The current INCOTERMS applied worldwide which is published by the International Chamber of Commerce (ICC) is known as INCOTERM 2000.