What is the role of Incoterms 2020 in defining risk transfer and costs?

• A. They specify the currency used in the contract.
• B. They determine the route of shipment.
• C. They specify which party bears costs and at what point risk transfers between seller and buyer.
• D. They set the price of freight.

Answer: (C)

Incoterms 2020 establish how responsibilities for costs and the risk of loss or damage are split between seller and buyer in international shipments. They spell out who pays for transport, insurance, export and import formalities, duties, and other costs, and they pinpoint the exact moment when the risk transfers from the seller to the buyer. This focus on both cost-bearing and risk transfer is why the correct choice best captures the role of Incoterms. They do not set currency, route, or the price of freight; those are determined by other terms in the contract. For example, under terms where risk passes when the goods are handed over to the carrier, the seller typically bears costs up to that handover, while the buyer takes on onward transport and risk thereafter.