Incoterms 2020 and risk transfer in France

What Incoterms are — ICC trade rules, not French law

Incoterms — a contraction of International Commercial Terms — are a set of standardised three-letter trade terms published by the International Chamber of Commerce (ICC). First issued in 1936 and revised at roughly ten-year intervals, the current edition, Incoterms 2020, has applied since 1 January 2020. Each term fixes, for a sale of goods that involves carriage, how the seller and the buyer share the costs of moving the goods to destination and, above all, the precise point at which the risk of accidental loss or damage passes from one to the other. For any business using Incoterms in France — selling to or buying from a French counterparty — they are the shorthand that settles who arranges transport, who insures the cargo, who clears customs and who carries an accident that happens in transit.

The point to grasp at the outset is that Incoterms are contractual, not statutory. They are private rules drafted by a trade body, and they bind a sale only because the parties have chosen them. French courts are consistent on this: the Cour de cassation has held that an Incoterm applies where the parties have shown a common intention to use it, and that it is not enough for a three-letter code merely to appear on a transport document. Incoterms is a registered trademark, and the ICC recommends citing the chosen rule with a named place and the edition — for example, FOB Le Havre, Incoterms 2020 — so that its scope is beyond argument.

Because they are chosen rather than imposed, Incoterms sit on top of the general law of sale. They do not replace the French Civil Code or the Vienna Convention (CISG); they slot into the contract and displace the default allocation of cost and risk that those regimes would otherwise apply. Where the contract is silent, or the term used is ambiguous, a French judge falls back on the Civil Code, on the Transport Code (Articles L5424-1 and following, which specifically govern maritime sales) or on established commercial usage to fill the gap. Knowing what an Incoterm does and does not settle is therefore the first task before writing one into a cross-border sale.

The eleven Incoterms 2020 and their four families

Incoterms 2020 offers eleven terms, grouped into four families identified by their first letter. The single E-term is EXW (Ex Works), under which the seller does the least: it makes the goods available at its own premises and the buyer takes over from there. The three F-terms — FCA (Free Carrier), FAS (Free Alongside Ship) and FOB (Free On Board) — require the seller to hand the goods to a carrier chosen by the buyer, without paying the main carriage. The four C-terms — CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), CFR (Cost and Freight) and CIF (Cost, Insurance and Freight) — require the seller to pay the main carriage, and in two cases the insurance, even though risk passes earlier. The three D-terms — DAP (Delivered At Place), DPU (Delivered At Place Unloaded) and DDP (Delivered Duty Paid) — put the seller in charge until the goods reach the named destination.

Cutting across those families is a second distinction that matters for anyone applying Incoterms in France: the mode of transport. Four terms — FAS, FOB, CFR and CIF — are designed for sea and inland-waterway carriage only, because they describe delivery in relation to a vessel. The other seven — EXW, FCA, CPT, CIP, DAP, DPU and DDP — work for any mode, including road, rail, air and, most importantly, multimodal container transport. Choosing a sea term for goods that in fact travel in a container to an inland French destination is one of the most common and costly errors, addressed further below.

The 2020 edition made only modest changes to the 2010 rules, but two are worth noting. DAT (Delivered At Terminal) was renamed DPU (Delivered At Place Unloaded) and broadened, so that the place of delivery need no longer be a terminal. And the insurance cover the seller must buy under CIP was raised to the wider Institute Cargo Clauses (A), while CIF continues to require only minimum cover (Clause C). Everything else about how the terms allocate delivery and risk carried over largely unchanged.

• E-family: EXW — collection at the seller's premises.
• F-family: FCA, FAS, FOB — the seller delivers to the buyer's carrier, no main freight paid.
• C-family: CPT, CIP, CFR, CIF — the seller pays main carriage (and, for CIP and CIF, insurance), but risk passes on handover for carriage.
• D-family: DAP, DPU, DDP — the seller delivers at the named destination.

What Incoterms do: delivery, cost, risk, carriage, insurance and customs

The core function of every Incoterm is to fix the delivery point — the physical moment and place at which the seller has performed its delivery obligation. That point is the pivot on which the whole term turns, because it usually coincides with the transfer of risk. Under EXW risk passes when the goods are placed at the buyer's disposal at the seller's premises; under FOB when they are loaded on board the vessel; under FCA and the C-terms when they are handed to the first carrier; and under the D-terms only when they arrive at the named destination. The further down the alphabet of families you go, the later the risk passes and the more the seller must do.

Alongside risk, each term allocates the costs of the operation: pre-carriage, main carriage, loading and unloading, and the various handling charges along the way. It is a defining feature of the C-terms that the risk point and the cost point diverge — the seller pays the freight to destination, yet risk has already passed to the buyer at shipment. A buyer who assumes that Cost and Freight means the seller carries the peril all the way to the port of arrival is mistaken; if the vessel is lost mid-voyage under CIF or CFR, the buyer still owes the full price and looks to the cargo insurance, not to the seller.

Two further allocations flow from the term. Carriage: the F-terms leave the buyer to contract for the main transport, the C- and D-terms put that on the seller. Insurance: only CIF and CIP oblige the seller to take out cargo insurance for the buyer's benefit, and even then the party bearing risk during a given leg should check that the cover matches its exposure. Finally, each Incoterm allocates export and import clearance: EXW leaves export formalities to the buyer, DDP puts even import clearance and duties on the seller, and the terms in between draw the line at the border in different places.

What Incoterms do not do — and why ownership is the key gap

The most important limit of every Incoterm, under French law, is that it says nothing about the transfer of ownership. The Cour de cassation has held plainly that neither the Transport Code nor the ICC rules settle the date on which property in the goods passes; an Incoterm fixes delivery and risk, and leaves ownership to be governed by the contract and the applicable law. A French court has drawn the practical consequence that a seller who has shipped under DDP no longer owns the goods once they are delivered and so may lose standing to sue over them — precisely because the term determined delivery, not title, and title had passed under the ordinary rules of the sale.

Incoterms are equally silent on the price and the terms of payment. They do not tell you when payment is due, in what currency, against which documents, or with what security; those are matters for the payment and retention-of-title clauses of the contract. Nor do they address breach and warranties: whether the goods conform, what remedies a buyer has for a defect, the seller's warranty against hidden defects, limitation periods and liability caps all remain governed by the Civil Code, the Commercial Code or the CISG. An Incoterm will not rescue a contract that is otherwise incomplete.

Finally, an Incoterm does not choose the governing law or the forum, and it does not resolve a dispute. It will not tell you whether French or English law applies, or whether the Paris commercial court or an arbitral tribunal has jurisdiction. Those questions turn on your choice-of-law and jurisdiction clauses. Treating Incoterms 2020 as a substitute for a properly drafted sales contract is a recurring and expensive misunderstanding among businesses trading with France.

How Incoterms interact with the French rules on the transfer of risk

To see what an Incoterm changes, you have to know the French default. Under Article 1196 of the Civil Code, the transfer of ownership carries the transfer of risk with it, and ownership passes by agreement alone — solo consensu — as soon as the parties agree on the thing and the price, even before delivery or payment. The maxim is res perit domino: the thing perishes for its owner. The upshot is startling for the uninitiated: on a purely domestic French sale with no special clause, a buyer who has not yet collected the goods can already bear the risk of their accidental destruction, because it is already the owner.

That default is not mandatory. Article 1196 lets the parties detach risk from ownership, and Incoterms are the standard way of doing so in cross-border trade. When the parties adopt a term, the risk of loss or damage passes at the point the term specifies — on shipment under FOB or CIF, on arrival under the D-terms — regardless of when ownership passes. Until the delivery point is reached, the seller remains bound to preserve the goods with due care (Article 1197 of the Civil Code) and answers for its own fault; the Cour de cassation has stressed that a seller relying on a fortuitous event to escape delivery must prove it, and must in any event have packed the goods properly to be discharged of the risk.

Two French rules sit behind the Incoterm and can still bite. For unascertained or generic goods, risk does not pass until the goods are individualised — set apart for the particular buyer by counting, weighing, measuring or marking (Articles 1585 and 1586 of the Civil Code); an Incoterm presupposes that step. And where the contract contains a retention-of-title clause, the goods remain at the seller's risk, including the risks of transport, for as long as the price is unpaid and title is reserved, unless the parties have agreed otherwise. This is one place where the ownership question and the risk question, which the Incoterm keeps apart, are pulled back together by French law.

Choosing the right Incoterm for your trade and transport mode

There is no single best Incoterm; the right one depends on the transport mode, on which party is better placed to organise carriage and clear customs, and on how you want risk and cost to fall. A French exporter that controls its logistics may prefer a C- or D-term to keep the customer experience seamless; an importer buying from abroad may want FCA or CPT so that it controls the main carriage and its own insurance. What matters is that the term, the named place and the edition are chosen together and written into the contract as a deliberate risk decision, not copied from a previous order.

The steps below give a practical sequence for selecting and documenting a term when you are selling to or buying from France. Work through them before the order is confirmed, because the Incoterm is far harder to renegotiate once goods are moving.

Common Incoterms mistakes in trade with France

The first classic error is using EXW on an export. Ex Works leaves all export formalities, and the risk of collection, to the buyer — which is workable for a domestic sale but awkward across a border, where a foreign buyer often cannot easily carry out French export clearance or obtain proof of export. For a cross-border sale, FCA usually achieves the same commercial split while placing export clearance on the seller, who is better placed to handle it.

The second is DDP and import VAT. Delivered Duty Paid makes the seller responsible for import clearance and for all duties and taxes, including import VAT, in the buyer's country. A foreign seller shipping into France under DDP may find it cannot recover the French import VAT it has paid and must register for VAT to do so, turning a customer-friendly term into an administrative and cash-flow burden. DAP, which stops short of import clearance, is often the safer choice.

The third is using a sea term for containerised cargo. FOB, CFR and CIF describe delivery by reference to loading on board a vessel, yet a container is typically handed over at a terminal days before it is loaded. Using FOB for a container leaves a dangerous gap in which the goods are out of the seller's control but risk has not yet passed. For containers, the ICC recommends FCA, CPT or CIP, which fix the risk point at handover to the carrier. A fourth, simpler mistake is naming the term without a place or an edition — FOB alone, with no port and no year — which invites a French court to reconstruct the parties' intention from usage rather than from their words.

Reference table: the eleven Incoterms 2020 at a glance

The table below summarises the eleven Incoterms 2020, the mode of transport each is built for, and the point at which the risk of loss or damage passes to the buyer. It is a starting map, not a substitute for reading the full ICC rule and adapting the contract to your transaction. Remember throughout that the risk column concerns risk only — under French law, ownership is settled separately by the contract and the Civil Code.

Read across a row and you see the logic of the families: the risk point moves later, and the seller's burden grows, as you pass from EXW through the F- and C-terms to the D-terms. Read down the risk column and you see why the sea terms suit only vessel-based delivery. For the interplay with title and the default French position, see our note on who bears the risk if goods are lost and on selling into France from abroad.

Frequently asked questions about Incoterms 2020 and risk transfer in France

What are Incoterms 2020?

Incoterms 2020 are the current edition of the International Chamber of Commerce's standardised trade terms, in force since 1 January 2020. They comprise eleven three-letter terms that allocate, for a sale involving carriage, the delivery point, the costs of transport, the transfer of risk and responsibility for customs clearance. They are contractual rules that apply only when the parties choose them, not French statute.

Do Incoterms transfer ownership?

No. Under French law an Incoterm fixes delivery and the transfer of risk, but it says nothing about the transfer of property. The Cour de cassation has held that neither the ICC rules nor the Transport Code settle the date on which ownership passes; that is governed by the contract and the Civil Code. You need a separate ownership or retention-of-title provision if you want title to move on payment rather than on shipment.

Does an Incoterm override the French risk rules?

It displaces them by agreement. The French default under Article 1196 of the Civil Code is that risk follows ownership and passes when the parties agree on the thing and the price. Because that rule is not mandatory, the parties may adopt an Incoterm to pass risk at a different point — for instance on shipment or on arrival — and a French court will apply the term they have chosen.

Which Incoterm should I use?

It depends on the transport mode, on who is better placed to organise carriage and clear customs, and on where you want risk and cost to fall. Sea and inland-waterway shipments in break-bulk form may suit FOB, CFR or CIF; containers and any other mode call for FCA, CPT, CIP or a D-term. Choose the term, the named place and the edition together, and align them with your ownership clause.

What is the difference between DAP and DDP?

Both are delivered terms under which the seller bears risk until the goods reach the named destination. Under DAP (Delivered At Place) the buyer handles import clearance and pays import duties and VAT; under DDP (Delivered Duty Paid) the seller does. DDP is heavier for a foreign seller into France, which may struggle to recover French import VAT, so DAP is often preferred.

Are Incoterms law in France?

No. Incoterms are private rules drafted by the International Chamber of Commerce, and the name is a registered trademark. They bind a sale only when the parties have shown a common intention to use them; it is not enough that a code appears on a transport document. Where they do not apply, a French judge falls back on the Civil Code, the Transport Code and commercial usage.

Do I need to name a place and the edition?

Yes. The ICC recommends citing the term with the named place and the year — for example FOB Le Havre, Incoterms 2020. A bare term with no place or edition leaves a French court to reconstruct what the parties meant from usage, which creates uncertainty precisely where the Incoterm was meant to give certainty.

Key takeaways on Incoterms 2020 and risk transfer in France

How our French lawyers help with Incoterms and risk transfer

Petroff Avocats advises both exporters selling into France and buyers importing from French suppliers on the choice and drafting of Incoterms. We match the term to your transport mode, customs position and insurance, and — because the Incoterm is silent on title — we draft the ownership and retention-of-title provisions alongside it so that risk and property fall exactly where you intend. We also review existing terms and conditions for the classic traps (EXW on exports, DDP import VAT, sea terms on containers), and we act on disputes over loss in transit, non-payment and standing to sue where the allocation of risk and ownership is contested.

This article is for general information only. It does not constitute legal advice, and Incoterms rules must be applied to the specific facts of each transaction. Incoterms are ICC contractual rules and do not transfer property under French law. Contact our French lawyers for advice on your situation.