Incoterms
"How are Incoterms applied in Turkish international trade contracts?"
Quick Answer
Incoterms (International Commercial Terms) are standard, globally recognized rules published by the International Chamber of Commerce (ICC) that govern the allocation of costs, risks, and tasks between buyers and sellers in cross-border B2B transactions. Under Turkish commercial practice, Incoterms are incorporated by reference and serve as the contractual foundation for delivery, customs clearance, and risk transition. Choosing the correct Incoterm 2020 rule directly determines key legal liabilities under the Turkish Code of Obligations (TBK).
Practical B2B Application Note
Incoterms are not self-executing. They must be explicitly incorporated into sales contracts by referencing the specific rule, the exact named place, and the version (e.g., "FOB Port of Mersin, Incoterms® 2020"). Under Turkish law, failure to specify the year of the rules can lead to significant contractual ambiguity in the event of a trade dispute.
1. Historical Development of the ICC and Incoterms
The aftermath of the First World War left global commerce fragmented, plagued by protectionist barriers, inconsistent local customs, and high transaction risks. In 1919, a group of forward-thinking entrepreneurs met in Atlantic City, USA, to restore international trade balances, promote investment, and standardize commercial practices. Calling themselves the "Merchants of Peace," they founded the International Chamber of Commerce (ICC). In 1920, the organization established its headquarters in Paris, France, and elected Etienne Clemental, the former French Minister of Commerce, as its first president.
To eliminate interpretation differences arising from different commercial cultures, the ICC technical commissions began researching international trade customs. This effort culminated in 1923 with the draft of standard commercial definitions, which eventually evolved into the first official set of Incoterms in 1936. Over the decades, the ICC has periodically revised these rules to reflect modern logistics, containerized cargo, and electronic documentation, with the latest update being the Incoterms 2020 rules, which came into effect on January 1, 2020.
2. Legal Nature of Incoterms under Turkish Trade Law
Under Turkish private law, Incoterms are classified as commercial usage and custom (ticari teamül ve adet) rather than statutory law. Consequently, they do not automatically apply to B2B transactions. Their legal authority derives from the principle of freedom of contract, codified under Article 26 of the Turkish Code of Obligations (TBK No. 6098).
When parties incorporate an Incoterm rule into their contract, its provisions override the default rules of delivery and risk transfer outlined in the TBK. Specifically:
- Risk Allocation: Incoterms specify the exact geographic point where the risk of loss or damage to the goods passes from the seller to the buyer. This directly interacts with TBK Article 208, which governs the transfer of risk in sales contracts.
- No Transfer of Ownership (Title): A common legal misconception is that Incoterms govern the transfer of title. Under the Turkish Civil Code (TMK Article 763), ownership of movable goods transfers only upon the transfer of physical possession (zilyetlik) or constructive delivery, regardless of the chosen Incoterm.
- Exclusion of Contractual Elements: Incoterms do not govern the price of the goods, payment terms, currency restrictions, breach of contract remedies, default interest, or governing law. These elements must be drafted separately in the main contract.
Conflict with Local Customs Clearance
Under Turkish Customs Law (No. 4458), import and export declarations require a registered local taxpayer or an authorized customs broker representing a Turkish entity. Therefore, terms that require the foreign buyer to clear export customs locally (e.g., EXW) or the foreign seller to clear import customs locally (e.g., DDP) present high compliance risks and potential tax penalties in Turkey.
3. Transition to Incoterms 2020: Key Changes and Revisions
The Incoterms 2020 rules were prepared over three years by an ICC drafting group comprising legal and logistics experts from various national committees. The revision aimed to simplify the rules, improve user-friendliness, and align cost and risk allocations. The major updates include:
- FCA with an On-Board Bill of Lading (B/L) Notation: Under FCA terms, delivery is completed when the seller hands the goods to the buyer's carrier. However, letters of credit (L/C) under UCP 600 typically require an "on-board" bill of lading. Incoterms 2020 resolves this by allowing the buyer and seller to agree that the carrier will issue an on-board notation to the seller after loading, enabling the seller to collect payment under the L/C.
- Different Insurance Levels (CIP vs. CIF): In previous versions, both CIP and CIF required the seller to provide minimum insurance cover (Institute Cargo Clauses C). In the 2020 rules, this is split:
- CIP: Requires the seller to obtain maximum "All Risks" cover under Institute Cargo Clauses (A), which is typical for manufactured goods.
- CIF: Retains the default requirement for limited cover under Institute Cargo Clauses (C), which is common for bulk commodities.
- DAT Renamed to DPU (Delivered at Place Unloaded): In the 2010 rules, DAT required delivery to a physical terminal. To emphasize that the delivery location can be any named place (e.g., a factory warehouse or construction site) and is not restricted to a terminal, the rule was renamed to DPU. The seller is responsible for unloading the goods at the destination.
- Provision for Own Transport: The 2010 rules assumed that transport would always be handled by a third-party carrier. The 2020 rules explicitly recognize that FCA, DAP, DPU, and DDP transactions can be performed using the seller's or buyer's own vehicles without outsourcing.
- Security Clearance Allocations: In response to modern customs security mandates (e.g., Authorized Economic Operator status, AEO, and customs security screening), transport-related security requirements and associated costs are explicitly divided between seller and buyer in articles A9/B9 of each rule.
4. Analysis of the 11 Incoterms 2020 Rules
Category 1: Rules for Any Mode or Modes of Transport (Multimodal)
EXW (Ex Works) - Ex-Works / İşyerinde Teslim
The seller makes the goods available at their premises (factory, warehouse). The buyer bears all risks and costs from that point, including loading the goods and clearing them for export. In Turkish trade practice: EXW is highly discouraged for international buyers exporting from Turkey because Turkish customs regulations require the exporter of record to be a local taxpayer registered with the exporter's association, which a foreign buyer cannot easily achieve without a local agent.
FCA (Free Carrier) - Free Carrier / Taşıyıcıya Masrafsız
The seller delivers the goods to the buyer's carrier at the seller's premises (seller loads) or at another named place (buyer unloads). The seller clears the goods for export. This is the recommended alternative to EXW for Turkish exports, as the seller handles export clearance locally.
CPT (Carriage Paid To) - Carriage Paid To / Taşıma Ödenmiş Olarak
The seller selects and pays the carrier to transport the goods to the named destination. Crucially, the risk transfers to the buyer upon delivery to the first carrier, not at the final destination. The seller clears export customs, while the buyer clears import customs.
CIP (Carriage and Insurance Paid To) - Taşıma ve Sigorta Ödenmiş Olarak
Identical to CPT, but the seller must also purchase transport insurance. Under Incoterms 2020, the seller must provide maximum insurance cover (Institute Cargo Clauses A) in favor of the buyer.
DAP (Delivered at Place) - Belirlenen Yerde Teslim
The seller delivers the goods on the arriving vehicle, ready for unloading, at the named place of destination. The risk transfers to the buyer at the destination. The buyer is responsible for unloading the goods and clearing import customs.
DPU (Delivered at Place Unloaded) - Boşaltma Noktasında Teslim
The seller delivers the goods unloaded from the arriving vehicle at the named destination. Risk transfers once the goods are unloaded. This is the only Incoterm that requires the seller to unload the goods at the destination.
DDP (Delivered Duty Paid) - Gümrük Vergileri Ödenmiş Olarak Teslim
The seller delivers the goods cleared for import on the arriving vehicle at the named place of destination. The seller bears all risks, costs, import duties, VAT, and customs fees. In Turkish trade practice: DDP is risky for foreign sellers importing into Turkey, as importing requires local taxpayer registration and compliance with Turkish technical barriers to trade (e.g., TSE certification).
Category 2: Rules for Sea and Inland Waterway Transport
FAS (Free Alongside Ship) - Gemi Doğrultusunda Masrafsız
The seller delivers the goods alongside the vessel nominated by the buyer at the named port of shipment. Risk and costs transfer when the goods are placed alongside the ship. The seller handles export clearance.
FOB (Free on Board) - Gemide Masrafsız
The seller delivers the goods loaded on board the vessel nominated by the buyer at the named port of shipment. Risk and costs transfer once the goods are on board the ship. Legal Note: FOB should not be used for containerized cargo, as containers are handed over to carriers at terminal gates, not loaded directly on board. FCA should be used instead.
CFR (Cost and Freight) - Masraflar ve Navlun Ödenmiş
The seller pays the cost and freight to bring the goods to the named port of destination. However, the risk of loss or damage transfers to the buyer when the goods are on board the vessel at the port of shipment.
CIF (Cost, Insurance and Freight) - Masraflar, Sigorta ve Navlun
Identical to CFR, but the seller must purchase marine insurance. Unlike CIP, the default insurance cover required under CIF is the minimum level (Institute Cargo Clauses C).
5. Incoterms 2020 Cost and Risk Allocation Matrix
The following table outlines the breakdown of costs, risks, and customs obligations between the Seller (S) and Buyer (B) for all 11 Incoterms 2020 rules:
| Incoterm Rule | Export Clearance | Loading at Origin | International Freight | Cargo Insurance | Unloading at Dest. | Import Clearance | Risk Transfer Point |
|---|---|---|---|---|---|---|---|
| EXW | Buyer (B) | Buyer (B) | Buyer (B) | Buyer (B) | Buyer (B) | Buyer (B) | At Seller's premises |
| FCA | Seller (S) | Seller (S) | Buyer (B) | Buyer (B) | Buyer (B) | Buyer (B) | When handed to carrier |
| FAS | Seller (S) | Buyer (B) | Buyer (B) | Buyer (B) | Buyer (B) | Buyer (B) | Alongside vessel at origin |
| FOB | Seller (S) | Seller (S) | Buyer (B) | Buyer (B) | Buyer (B) | Buyer (B) | On board vessel at origin |
| CFR | Seller (S) | Seller (S) | Seller (S) | Buyer (B) | Buyer (B) | Buyer (B) | On board vessel at origin |
| CIF | Seller (S) | Seller (S) | Seller (S) | Seller (S) (Clauses C) | Buyer (B) | Buyer (B) | On board vessel at origin |
| CPT | Seller (S) | Seller (S) | Seller (S) | Buyer (B) | Buyer (B) | Buyer (B) | Upon delivery to first carrier |
| CIP | Seller (S) | Seller (S) | Seller (S) | Seller (S) (Clauses A) | Buyer (B) | Buyer (B) | Upon delivery to first carrier |
| DAP | Seller (S) | Seller (S) | Seller (S) | Buyer/Seller | Buyer (B) | Buyer (B) | Ready for unloading at dest. |
| DPU | Seller (S) | Seller (S) | Seller (S) | Buyer/Seller | Seller (S) | Buyer (B) | Unloaded at destination |
| DDP | Seller (S) | Seller (S) | Seller (S) | Buyer/Seller | Buyer (B) | Seller (S) | Ready for unloading at dest. |
Mandatory Warning for Turkish Importers
Under Turkish import tax regulations, customs valuation requires adding freight and insurance costs to the value of the goods. For terms like EXW, FCA, and FOB, importers must present actual freight invoices and insurance policies to customs. If they fail to do so, customs authorities will apply high presumptive rates, increasing the customs duty and VAT liability.
6. Interplay with Letters of Credit (L/C)
Documentary credits (governed by ICC UCP 600 rules) require strict document compliance. The choice of Incoterm dictates the documents the seller must present to the bank to trigger payment:
- F-Group Terms (FOB, FCA): The carrier is selected and paid by the buyer. Under FCA, the seller might struggle to obtain a bill of lading showing the goods are loaded "on board" because the carrier has no contract with the seller. Using the Incoterms 2020 FCA on-board option is critical to ensure L/C compliance.
- C-Group Terms (CIF, CIP, CFR, CPT): The carrier is selected by the seller. This gives the seller direct control over the shipping documents (such as clean, on-board bills of lading or waybills), making L/C payment processing smoother.
Litigating Incoterms Disputes in Turkish Courts
In the event of damage to cargo, Turkish commercial courts evaluate the Incoterm to determine which party had the risk of loss at the moment of damage. This dictates who has the legal standing (aktif husumet ehliyeti) to sue the carrier or insurer under the Turkish Commercial Code (TTK).
Frequently Asked Questions
What are Incoterms and why are they used in Turkish international trade?
Incoterms are standard commercial codes published by the ICC to outline the tasks, risks, and costs associated with B2B international shipping. They are used in Turkey to standardize contract terms, prevent disputes over freight, insurance, and customs responsibilities, and establish a common legal language between Turkish and international counterparties.
Are Incoterms 2020 rules legally binding automatically under Turkish law?
No. They are voluntary, private rules. For them to be legally binding under the Turkish Code of Obligations (TBK), the contract must explicitly incorporate them (e.g., "CIF Ambarli Port, Istanbul, Incoterms® 2020"). If the contract does not mention them, the default delivery and risk transfer rules of the TBK will apply instead.
What is the key difference between CIP and CIF under the 2020 rules?
The key difference lies in the mandatory insurance coverage level. Under Incoterms 2020, CIP requires the seller to purchase maximum insurance cover (Institute Cargo Clauses A - All Risks), which is typical for manufactured goods. CIF only requires the seller to purchase minimum insurance cover (Institute Cargo Clauses C - limited cover), which is common for bulk raw materials.
Why did the ICC replace DAT with DPU in the Incoterms 2020 revision?
DAT (Delivered at Terminal) was replaced by DPU (Delivered at Place Unloaded) to resolve the misconception that goods could only be delivered to a transport terminal. Under DPU, delivery and risk transfer can occur at any named place of destination (such as a warehouse or factory), provided the seller unloads the goods from the transport vehicle.
Do Incoterms govern the transfer of title or ownership of goods under Turkish law?
No. Incoterms only regulate risk transfer and cost allocation. The transfer of ownership (title) of movable goods is governed by the Turkish Civil Code (TMK), which dictates that title passes upon the transfer of physical possession (zilyetlik) or through specific title documents, independent of the Incoterm risk transfer point.
Why is the EXW (Ex Works) term discouraged for Turkish export transactions?
Under EXW, the foreign buyer must handle export customs clearance in Turkey. However, Turkish customs regulations require the exporter of record to be a local taxpayer registered with the relevant Exporters' Association. Foreign buyers without a Turkish entity face significant hurdles clearing export customs, which makes FCA a much safer and more practical alternative.
Need Expert Legal Guidance?
Our experienced attorneys can help you navigate incoterms under Turkish law.
Schedule a Consultation