The History of Incoterms: From 1936 to 2020 and Beyond

Understanding the Evolution of International Commercial Terms

Incoterms (International Commercial Terms) are standardized rules published by the International Chamber of Commerce (ICC) that define the responsibilities, costs, and risks between buyers and sellers in international merchandise trade. These terms clarify who bears the cost of transportation, insurance, and customs clearance, making them essential for smooth cross-border commerce. The history of Incoterms spans nearly a century, reflecting the evolution of global trade, transportation technologies, and commercial practices.

• Discover the origins of international commercial standardization and how early maritime practices shaped modern trade rules
• Understand key revisions that adapted Incoterms to containerization, digital trade, and security requirements
• Learn how Incoterms 2020 continues to serve as the global standard for over 140 countries and counting

The Origins and Early Antecedents of Incoterms

Before the formal creation of Incoterms, international commerce operated in a landscape of ambiguity and dispute. The concept of standardizing commercial terms emerged gradually from the practical needs of merchants and traders navigating complex international transactions.

Early Maritime Practices and the FOB Term

The history of Incoterms truly begins with maritime trade. As early as 1812, British courts were already using the term FOB (Free On Board) to describe the point at which risk and responsibility transferred from seller to buyer. This term, born from centuries of seafaring commerce, established a foundational principle: clearly defining when and where goods changed hands was critical to resolving disputes and clarifying obligations.

During this era, maritime commerce was the lifeblood of international trade. Goods traveled by ship, and the conditions of carriage—who paid for what, who bore the risk of loss or damage—were matters of significant commercial and legal importance. The British, as a maritime superpower, developed and refined these practices through their courts and commercial customs.

The Rise of CIF and Expanding Global Trade

By 1895, as international commerce expanded beyond Europe and North America, a new term gained prominence: CIF (Cost, Insurance and Freight). This term reflected the growing complexity of maritime trade. Under CIF, the seller agreed to cover not only the cost of goods and freight but also insurance, providing the buyer with greater security. This development marked a significant shift in how parties allocated risk and responsibility in long-distance ocean voyages.

The emergence of CIF demonstrated that as trade became more sophisticated, so too did the commercial terms used to govern it. However, without official standardization, different regions, industries, and even individual merchants interpreted these terms differently. This inconsistency created friction in international transactions and led to costly disputes.

The Need for Global Standardization

Recognizing the chaos created by divergent interpretations, the International Chamber of Commerce (ICC), founded in 1919, took up the challenge of standardization. In 1923, the ICC conducted the first comprehensive survey of commercial terms commonly used in international trade. This survey revealed the urgent need for a unified, globally recognized set of rules.

The ICC's initiative was revolutionary for its time. Rather than allowing each country or industry to develop its own standards, the ICC proposed creating a single, internationally agreed-upon framework. This approach would reduce disputes, lower transaction costs, and facilitate smoother cross-border commerce.

The Official Creation of Incoterms in 1936

In 1936, the ICC published the first official version of Incoterms. This landmark event represented the first global effort to standardize interpretations of commercial terms and clarify the responsibilities of buyers and sellers in international merchandise trade.

The Original Six Terms

The 1936 version included six terms:

• FAS (Free Alongside Ship) – Seller delivers goods alongside the vessel at the port of shipment
• FOB (Free On Board) – Seller delivers goods on board the vessel; buyer assumes risk once goods cross the ship's rail
• C&F (Cost and Freight) – Seller pays freight but not insurance; buyer assumes risk after goods cross the ship's rail
• CIF (Cost, Insurance and Freight) – Seller pays for cost, insurance, and freight; buyer assumes risk after goods cross the ship's rail
• Ex Ship – Seller bears risk until goods are delivered on the ship at the port of destination
• Ex Quay – Seller bears risk until goods are unloaded at the quay (dock) of the destination port

These six terms reflected the maritime-dominated nature of international trade in the 1930s. Each term clearly delineated the point at which risk transferred, who paid for insurance, and who covered freight costs. This clarity was revolutionary, providing merchants with a common language and reducing the likelihood of costly misunderstandings.

Impact of the 1936 Version

The 1936 Incoterms quickly gained acceptance among international traders, freight forwarders, and legal professionals. By providing a standardized framework, the ICC reduced transaction costs, minimized disputes, and fostered confidence in international commerce. The terms became embedded in contracts, insurance policies, and shipping practices worldwide.

However, the world was changing rapidly. Transportation technologies, trade routes, and commercial practices were evolving, and Incoterms would need to evolve with them.

Evolution and Major Revisions: Adapting to a Changing World

The history of Incoterms is fundamentally a story of adaptation. As transportation methods, technologies, and global commerce patterns shifted, the ICC recognized the need to update and refine the rules to maintain their relevance and utility.

1953: Expansion to Non-Maritime Transport

In 1953, the ICC recognized that not all international trade traveled by sea. The introduction of rail transport as a significant mode of international commerce prompted the addition of new terms. Crucially, this revision also introduced EXW (Ex Works), a term indicating that the buyer assumes all responsibility from the moment goods are ready at the seller's premises. EXW represented a fundamental shift in recognizing that international trade was no longer exclusively maritime.

1967 and 1976: Gradual Refinements

Throughout the 1960s and 1970s, the ICC made incremental adjustments to Incoterms to reflect evolving transport practices. The 1976 revision introduced FOB Airport, acknowledging the growing importance of air freight in international commerce. These revisions demonstrated the ICC's commitment to keeping Incoterms relevant as new transportation modes and routes emerged.

1980: The Container Revolution

One of the most significant revisions came in 1980. The rise of containerization—standardized shipping containers that could be transferred seamlessly between ships, trucks, and trains—fundamentally changed international logistics. Traditional maritime terms like FOB and CIF, which referenced the ship's rail as the point of risk transfer, became problematic in a containerized world where goods might never physically cross a ship's rail in the traditional sense.

To address this, the ICC introduced FCA (Free Carrier) and CIP (Carriage and Insurance Paid). These terms were designed to work with containerized transport and multimodal (intermodal) shipments. FCA allowed the seller to deliver goods to a carrier at a named place, with the buyer assuming risk once the carrier takes possession. CIP extended the CIF concept to multimodal transport, with the seller paying for carriage and insurance.

The 1980 revision was transformative. It signaled that Incoterms were not frozen in time but would evolve to serve modern commerce. This flexibility has been key to Incoterms' enduring relevance.

1990: Embracing Intermodal Transport and EDI

By 1990, intermodal (multimodal) transport had become standard in international logistics. Goods commonly traveled by multiple modes—truck to port, ship across ocean, truck to final destination. The 1990 revision further refined Incoterms to accommodate these complex, multi-leg journeys. Additionally, the growing adoption of Electronic Data Interchange (EDI) in trade documentation prompted clarifications about how Incoterms applied in an increasingly digital environment.

2000: Clarifying Customs and Compliance Responsibilities

The 2000 revision focused on simplifying and clarifying responsibilities related to customs clearance and compliance. As international commerce became more complex and regulatory requirements more stringent, it was essential that Incoterms clearly specify who bore the obligation and cost of customs procedures. This revision helped prevent disputes over customs-related expenses and responsibilities.

2010: Streamlining and Modernization

In 2010, the ICC undertook a significant rationalization. The number of terms was reduced from 13 to 11, eliminating four terms that had become outdated:

• DAF (Delivered at Frontier) – Replaced by more flexible alternatives
• DES (Delivered Ex Ship) – Subsumed into other terms
• DEQ (Delivered Ex Quay) – Consolidated into newer terms
• DDU (Delivered Duty Unpaid) – Replaced by DAP

The 2010 revision introduced two important new terms:

• DAT (Delivered at Terminal) – Seller delivers goods unloaded at a terminal at the destination port
• DAP (Delivered at Place) – Seller delivers goods at a named place, ready for unloading

These changes reflected the reality of modern supply chains, where goods often remain in terminals or distribution centers rather than being delivered directly to end-users. The 2010 revision also emphasized security, reflecting post-9/11 concerns about cargo security and supply chain visibility.

Incoterms 2020: The Current Standard

The ninth and current version of Incoterms, published on September 10, 2019, and effective January 1, 2020, represents the most recent evolution. This version incorporates lessons learned from two decades of containerized and intermodal commerce while addressing 21st-century concerns.

Key Changes in Incoterms 2020

DPU Replaces DAT: The most notable change was the renaming of DAT to DPU (Delivered at Place Unloaded). This change provides greater flexibility by allowing the seller to deliver goods at any place, not just terminals, with the seller bearing the cost and risk of unloading. This reflects the reality that goods may be delivered to warehouses, distribution centers, or other locations beyond traditional ports and terminals.

Enhanced Insurance Requirements for CIP: Under Incoterms 2020, CIP now requires the seller to provide insurance coverage under Institute Cargo Clauses A (the broadest coverage), whereas CIF can still use Institute Cargo Clauses C (more limited coverage). This change recognizes that buyers using CIP (typically for multimodal transport) may face greater risks and therefore deserve more comprehensive insurance protection.

Clarifications on FCA and Bill of Lading: Incoterms 2020 clarified that under FCA, the seller can provide a bill of lading with an "on board" notation, even if the goods are delivered to a carrier before the vessel departs. This clarification acknowledges modern shipping practices where goods may be consolidated at a carrier's facility before loading.

Emphasis on Own Transport and Security: The 2020 version emphasizes that sellers can use their own transport to fulfill delivery obligations, reflecting the reality of modern supply chains where companies may operate their own logistics networks. Additionally, there is greater emphasis on security obligations, including cooperation with customs authorities and compliance with security regulations.

The 11 Current Incoterms Under the 2020 Version

Incoterms 2020 includes 11 terms, organized into two categories:

For Any Mode of Transport (or Combination of Modes):

• EXW – Ex Works
• FCA – Free Carrier
• CPT – Carriage Paid To
• CIP – Carriage and Insurance Paid
• DAP – Delivered at Place
• DPU – Delivered at Place Unloaded
• DDP – Delivered Duty Paid

For Sea and Inland Waterway Transport Only:

• FAS – Free Alongside Ship
• FOB – Free On Board
• CFR – Cost and Freight
• CIF – Cost, Insurance and Freight

This structure clearly distinguishes between terms suitable for any transport mode and those specific to maritime transport, helping users select the appropriate term for their particular situation.

How FreightAmigo Leverages Incoterms Knowledge for Modern Commerce

Understanding Incoterms is essential for international traders, but applying them correctly in real-world transactions requires expertise and access to the right tools. At FreightAmigo, we recognize that Incoterms form the foundation of international shipping contracts, and we've integrated this knowledge into our platform to help our users navigate complex international transactions.

Our Instant Quote service helps users understand the total cost of shipments under different Incoterms. When you request a quote, we calculate costs based on your chosen Incoterm, ensuring clarity about who bears which costs. For instance, under CIF, the seller pays freight and insurance; under FOB, the buyer assumes these costs. Our calculator reflects these distinctions, preventing costly misunderstandings.

Additionally, our Customs Clearance service addresses one of the most complex aspects of Incoterms: determining who is responsible for customs procedures and duties. Terms like DDP place full responsibility on the seller, including duty payment, while terms like DAP place this on the buyer. Our AI-driven HS code validation and duty optimization help clarify these obligations, ensuring compliance and avoiding unexpected costs.

For users managing complex supply chains with multiple shipments and modes of transport, our Track & Trace service provides real-time visibility. When risk transfers at specific points (as defined by Incoterms), having complete visibility of cargo movement is crucial for managing insurance claims and ensuring accountability.

The Global Adoption and Impact of Incoterms

Today, Incoterms are used in international commerce across more than 140 countries and are available in numerous languages. The terms have become so ubiquitous that they are referenced in the United Nations Convention on International Multimodal Transport of Goods (1980) and are incorporated into many national laws and regulations governing international trade.

The widespread adoption of Incoterms reflects their fundamental utility. By providing a common language for international commerce, Incoterms have reduced transaction costs, minimized disputes, and facilitated the growth of global trade. Traders, freight forwarders, insurers, banks, and legal professionals all rely on Incoterms to structure and interpret international commercial transactions.

The ICC estimates that Incoterms are referenced in the majority of international sales contracts. This prevalence underscores their importance in the modern global economy. Whether a small business is exporting goods for the first time or a multinational corporation is managing a complex supply chain, Incoterms provide the framework for clear, unambiguous commercial relationships.

Future Outlook: Will Incoterms Continue to Evolve?

The ICC has indicated that it reviews Incoterms approximately every decade to ensure their continued relevance. As of 2026, Incoterms 2020 remains the current standard and is recommended by the ICC for all new contracts. However, the organization remains open to further revisions as global commerce continues to evolve.

Potential areas for future revision might include:

• E-commerce and Digital Trade: As online commerce continues to grow, Incoterms may need further clarification regarding digital goods, intellectual property, and direct-to-consumer shipping models.
• Sustainability and Carbon Footprint: With increasing emphasis on environmental responsibility, future revisions might address carbon accounting and sustainability considerations in international shipments.
• Supply Chain Resilience: Recent global disruptions have highlighted the importance of supply chain flexibility. Future versions might provide greater guidance on managing disruptions and allocating risks during extraordinary circumstances.
• Emerging Transport Modes: Drone delivery, autonomous vehicles, and other emerging technologies may necessitate new terms or clarifications.

Parties to international transactions may continue to use earlier versions of Incoterms (such as Incoterms 2010 or even 2000) if they explicitly agree to do so in their contracts. However, the ICC strongly recommends using the most current version to ensure clarity and to benefit from the latest refinements based on evolving commercial practices.

Conclusion

The history of Incoterms is a testament to the power of standardization in facilitating global commerce. From the earliest uses of FOB in 1812 to the comprehensive framework established by the ICC in 1936, and through nine revisions reflecting changing transportation technologies and commercial practices, Incoterms have evolved to remain relevant and essential. Incoterms 2020, the current standard used across more than 140 countries, continues this tradition by addressing modern supply chain complexities while maintaining clarity about responsibilities, costs, and risks. For international traders, understanding this history and applying the correct Incoterm is fundamental to successful, dispute-free transactions. Ready to streamline your international shipping? Use our Instant Quote calculator to understand costs under different Incoterms and get started with FreightAmigo today.