The Incoterms become part of a sales contract if seller and buyer so agree by simple reference to one of the trade terms expressly stating that the contract should be interpreted according to a particular Incoterm, e. g. C.I.F. Incoterms 2000.
It should be noted that special provisions in individual contracts will override anything provided in Incoterms. Parties may adopt Incoterms as a general basis of a contract but may also specify variations or additions to fit a contract to a particular trade or to particular needs. In this context, it is important to bear in mind that Incoterms are premised on the seller’s minimum liability. In an individual contract, the buyer therefore may wish to increase the seller’s obligation.
It should also be kept in mind that reference to a particular Incoterm is not sufficient to determine the full legal relationship between parties to a contract of sale. Matters such as breach of contract and its consequences, as well as the difficult problem of ownership of goods, are outside the scope of the trade terms.
The scope of Incoterms is limited to matters relating to the rights and obligations of the parties to the contract of sale with respect to the delivery of goods sold. Their basic purpose is to explain how responsibility, cost and risk should be divided between the parties in connection with the delivery of goods from seller to buyer.
To establish this division, the point at which goods are considered delivered from seller to buyer under the respective terms must be indicated. Normally, at this point (the "critical point"), the obligation to arrange for further transport of goods and to assume further costs and risks is transferred from seller to buyer. Under some trade terms, the "critical points" for the transfer of costs and risks do not coincide.
There are two particular misconceptions about Incoterms:
they are frequently misunderstood as applying to a contract of carriage rather than to a contract of salethey are sometimes wrongly assumed to provide for all the obligations which parties may wish to include in a contract of sale.
These misconceptions are very common although the ICC has always stressed that Incoterms deal only with the relation between sellers and buyers under a contract of sale, and, moreover, only do so in some particular and very distinct respects.