An Alsatian equipment maker sold 640,000 euros of packaging lines to an Italian buyer. The purchase order says DAP Milan, Incoterms 2020, and the seller French general terms, translated, designate French law and the commercial court of Strasbourg. The buyer refused the goods on arrival, alleged non-conformity, did not pay the balance and sued in Italy. The seller then discovered two things it did not know when it signed: that the three-letter acronym it had accepted designates an Italian place of delivery, and that its retention of title clause, perfectly drafted, does not secure what it thought.
Incoterms are the most used and the most misunderstood instrument in international trade. They settle fewer things than people think and determine others that nobody attributes to them. This page sets out what they do, what they do not do, how the transfer of risk and the transfer of property combine, and why a retention of title clause that works in France may be worth nothing elsewhere.
1. Eleven rules, two families, one recurring mistake
The Incoterms 2020 of the International Chamber of Commerce, in force since 1 January 2020, comprise eleven rules in two families. Seven can be used for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are reserved for sea and inland waterway transport: FAS, FOB, CFR and CIF.
The most frequent mistake by far is to use a maritime rule for containerised transport. Goods handed over at a container terminal are not loaded on board the vessel by the seller, so choosing FOB in that situation creates a gap between the stipulated moment of transfer of risk and the physical reality of the operation. That gap is invisible while everything goes well. It surfaces on the day of the loss, when it has to be decided who bore the goods at the precise moment they were damaged, between handover at the terminal and actual loading.
The International Chamber of Commerce recommends FCA in that configuration. Banking practice, attached to the on-board bill of lading required by documentary credits, continues to impose FOB. That conflict is real, it is not resolved, and it has to be settled contract by contract, taking the payment method into account, rather than inherited by copying the previous order.
Choosing the Incoterm according to the payment method, documentary credit included, is covered in our article on the Incoterm and the payment method for exports.
2. What Incoterms do not settle, and the ICC says so itself
The official introduction to the Incoterms 2020 lists what the rules do not deal with, and that list ought to open every export training course. Incoterms deal neither with the existence of a contract of sale, nor with the specifications of the goods, nor with the time, place, method or currency of payment of the price. Nor do they deal with remedies for breach, the consequences of delay, the effect of sanctions, the imposition of customs duties, export or import prohibitions, force majeure and hardship, intellectual property rights, or the method, place and law of dispute resolution.
And the International Chamber of Commerce says it in so many words: the Incoterms rules do not deal with the transfer of property in the goods sold. The words CIF Shanghai, Incoterms 2020 are therefore not a contract. They are a clause allocating delivery costs and risks, to be inserted into a contractual set that settles everything else.
The practical consequence is that an export contract cannot be short on the ground that it contains an Incoterm. Every question the rule leaves open will have to be decided one day, either by a clause you negotiated or by a law you did not choose.
3. What they do determine: the competent court
It would be wrong to conclude that an Incoterm has no jurisdictional effect. The Court of Justice of the European Union has held that, in order to determine the place of delivery for the purposes of the rule of jurisdiction in contractual matters, the national court must take account of all the relevant terms and clauses of the contract capable of designating that place clearly, including terms and clauses generally recognised and applied in international trade usage, such as the Incoterms (judgment of 9 June 2011, Electrosteel Europe, Case C-87/10). Only failing that, and without recourse to the applicable substantive law, is the place of delivery the place of physical transfer of the goods to the buyer at their final destination (judgment of 25 February 2010, Car Trim, Case C-381/08).
Both judgments were given under the earlier regulation, whose wording is reproduced identically in the regulation in force, which expressly ensures continuity of interpretation (Regulation (EU) No 1215/2012, recital 34 and article 7(1)(b)). And jurisdiction in contractual matters is determined precisely by the place of delivery of the goods.
By accepting DAP Milan, the Alsatian seller in our example designated an Italian place of delivery and gave the claimant the option of seising the Italian court. Its jurisdiction clause could of course have excluded that option, provided it was valid and enforceable in the required form (same regulation, article 25), which is not established in translated general terms where it is unknown whether they were accepted. A three-letter acronym on a purchase order can therefore decide jurisdiction.
4. Transfer of risk and transfer of property, two distinct questions
The transfer of risk and the transfer of property are two different legal operations, governed by different sources, which do not necessarily coincide in time. The Incoterm settles the first and expressly disclaims the second. The Vienna Convention also governs the passing of risk (articles 66 to 69) while excluding from its scope the effect the contract may have on the property in the goods sold (article 4(b)).
The result is a situation practitioners meet without always identifying it: an exporter may have delivered, transferred the risk to the buyer, and remain owner of the goods, or the reverse, depending on the applicable law and the drafting of the contract. The contract must therefore settle separately the moment of transfer of property, the existence and scope of a retention of title, the moment of transfer of risk, and the consequences of non-payment on each of them.
Writing those four points takes about ten lines. Not writing them means leaving each of them to a default rule whose content is unknown when you sign, and which you will discover at the moment you need it to say something else.
5. Retention of title, and its fragility outside the Union
French law accepts retention of title broadly, since property in an asset may be retained by way of security under a clause, agreed in writing, suspending the transfer of ownership until payment in full (civil code, articles 2367 and 2368). It may be exercised over fungible goods of the same nature and quality held by the debtor (same code, article 2369), survives incorporation where the goods can be separated without damage (article 2370) and carries over to the price claim against a sub-purchaser or to the insurance indemnity subrogated to the asset (article 2372).
In insolvency proceedings, effectiveness requires a clause in writing no later than the time of delivery and goods found in kind (commercial code, article L. 624-16), but above all it requires the claim to be made within the strict three-month period following publication of the opening judgment (same code, article L. 624-9). After three months, the best clause in the world is worth nothing.
Then comes the international difficulty, which has to be named. The validity of the clause between the parties falls under the law of the contract, since the Rome I Regulation governs the interpretation and performance of contractual obligations (Regulation (EC) No 593/2008, article 12), but its enforceability against third parties, that is, its real effectiveness, falls outside that regulation, whose scope is limited to contractual obligations (same regulation, article 1(1)). It falls under the law of the place where the asset is, a rule the Hague Convention of 15 April 1958 set out to unify and which never entered into force for want of ratifications.
Inside the Union there is a valuable correction: the opening of insolvency proceedings against the buyer does not affect the rights of the seller based on a retention of title where the asset is situated, at the time of opening, in the territory of another Member State (Regulation (EU) 2015/848, article 10(1)), the text also protecting third parties rights in rem over assets situated in another Member State (same regulation, article 8). Outside the Union, effectiveness is checked country by country, and that check is done before shipment.
6. Consistency with transport and insurance
The contract of sale, the contract of carriage and the insurance policy are three distinct contracts, concluded between different parties, whose consistency is secured by nobody other than the exporter. Each mode of transport also caps compensation: 8.33 units of account per kilogram of gross weight short in international road transport (CMR Convention of 19 May 1956, article 23(3)), 26 special drawing rights per kilogram in air transport since 28 December 2024 (Montreal Convention of 28 May 1999, article 22(3)), 666.67 units of account per package or 2 per kilogram under a bill of lading, whichever is the higher (Hague-Visby Rules, article IV, rule 5(a)), 17 units of account per kilogram short in rail transport (COTIF, CIM appendix, article 30(2)).
Cargo insurance must be consistent with the Incoterm chosen. Under CIF the seller takes out minimum cover corresponding to the narrowest institute clauses; under CIP the Incoterms 2020 raised the requirement to all risks cover. Under FCA, FOB, CFR, DAP or DPU no insurance obligation rests on the seller, which does not mean it has no interest in insuring, since it remains exposed until the risk has passed, and exposed again if the buyer refuses the goods.
A useful point, because it is often badly explained: insurance of goods in transit falls, whatever the mode, under title VII of book I of the French insurance code, which governs any contract covering risks relating to the carriage of goods by sea, air or land (insurance code, article L. 171-1, 4). That regime is appreciably more liberal than the general law of insurance contracts, which gives the drafting of the policy an importance many insureds do not anticipate.
The firm negotiates and drafts export contracts and acts in the resulting disputes as part of its international trade law practice.
Also coming: Regulation (EU) 2026/2108 replaces the 2013 Union Customs Code from 21 September 2027 and reorganises who answers for an import. See Le nouveau code des douanes de l’Union : ce qui change concrètement pour les entreprises (Village de la Justice, 22 September 2026, in French).
This analysis is part of a set on exporting from France: start with the legal checklist before you sign, and see also VAT on exports and proof of exit and dual-use items and export licences.
Frequently asked questions
Must a place always be stated after the Incoterm?
Yes, and the place must be precise. Writing FCA works means nothing, whereas FCA followed by a full address designates unambiguously the point where risk passes, which determines the allocation of costs, the extent of the insurance needed and, as seen above, the place of delivery used for jurisdiction. The version must also be stated, the Incoterms 2010 remaining usable if the parties designate them. The International Chamber of Commerce has so far announced no revision after the 2020 version.
Can I still use the Incoterms 2010?
Yes, provided they are expressly designated, since the rules apply only by the will of the parties. That does however mean knowing what changed, in particular on the level of insurance required under CIP, on the replacement of DAT by DPU and on the treatment of the on-board bill of lading under FCA. Carrying over an old reference by copying an internal template, without having identified those differences, means applying a regime you did not choose, which is exactly what referring to a version is supposed to avoid.
Is DDP really riskier than the other rules?
For an exporter with no presence in the country of destination, yes, and it is the most exposing of the eleven. The seller takes on import clearance in a country where it is not established, where it usually has no tax identification number, and where it does not know the local tax regime or the conditions under which it will, or will not, recover the tax paid. The rule is negotiated, not conceded to a buyer who presents it as a simple logistical convenience.
Under CIF, what insurance cover should I actually take out?
The minimum obligation corresponds to the narrowest institute clauses, which cover exhaustively named risks and exclude in particular natural events, entry of water and the loss of a package overboard. For containerised cargo carried on deck, that minimum cover leaves outside the guarantee precisely what is most likely to happen. Nothing prevents taking out more, and the difference in premium bears no comparison with the difference in exposure: the question therefore arises when quoting, not after the loss.
Is a bill of lading a document of title to ownership?
The bill of lading is a document representing the goods, whose transfer allows delivery to be obtained and circulation to be organised, in particular in favour of a bank under a documentary credit. It is not however the same as the transfer of property in the law of sale, which follows the law applicable to the contract and, for its effects in rem, the law of the place where the asset is. Confusing documentary control of the goods with ownership of them is a classic source of misunderstanding when the buyer becomes insolvent while the documents are still circulating.