What do incoterms define in international trade transactions?

Incoterms, or International Commercial Terms, are a set of predefined commercial terms widely used in international transactions to clarify the responsibilities of buyers and sellers. They specifically outline key aspects of the sales agreement related to shipping, transportation, and the allocation of risks and costs associated with the delivery of goods. This includes detailing who pays for the transportation, who is responsible for insurance, and where the risk of loss or damage transfers from the seller to the buyer. By establishing these responsibilities clearly, Incoterms help prevent misunderstandings and disputes between parties involved in international trade.

While insurance providers and shipping routes may be relevant to international trade, Incoterms do not define their responsibilities or specify shipping routes and regulations. Tax regulations for cross-border transactions are also outside the scope of what Incoterms cover, as they primarily focus on the logistics of the sale itself. Thus, defining the responsibilities of buyers and sellers is the central purpose of Incoterms in facilitating smoother and clearer international trade transactions.