What is Incoterms ?
Incoterms, is in fact the short form of International Commercial Terms, which is proposed by the International Chamber of Commerce (ICC) in 1936 and it has been revised 10 times since then and its last version is Incoterms 2020.
Incoterms 2020 is a collection of 11 terms as follows which are explained in details later on in this article:
EXW, FCA, CPT, CIP, DAP, DPU, DDP, FAS, FOB, CFR, CIF
What does Incoterms do?
Incoterms rules, clarify the following principals:
- Responsibilities: What are the responsibilities of the seller and the buyer? Who should arrange for the cargo insurance and transportation? and who should take care of export formalities at the origin or import formalities at destination?
- Risks: Where and how the seller should make delivery of the cargo? In other words, where does risk transfer from the seller to the buyer?
- Costs: Who should pay for what? For example, who should pay for packaging, insurance, transportation, cargo loading and discharge or shipment safety measures?
What does Incoterms do NOT do?
Incoterms rules in no conditions are a replacement for the sales contract. They do not specify special treatment about special kind of goods, or trading of goods or shipping mode of goods. They generally apply to any kind of goods in any kind of trading of goods and any mode of shipping of goods.
They do not have any kind of response to do with the following questions:
- Is there any sales contract available or not?
- What is the kind of goods being sold or purchases?
- How, where, when and in what currency the sales price is paid for?
- What are the measures to be taken in case of any kind of breach of the sales contract?
- What to do in case of Force Majeure?
- What is the law governing the sales contract and what and how the legal procedures are treated?
- And most important of all, How is the title and ownership of the goods are transferred from the buyer to the seller?
How to best use Incoterms 2020?
To most effectively use Incoterms, the following structure should be adhered to:
{The Incorterms rule being chosen} + {The location} + {Incoterms 2020}
For example:
FCA Shanghai Incoterms 2020
DAP Paris Incoterms 2020
Note:
It is important to note that the specified location, is not necessarily where the risk is transferred from the buyer to the seller and it depends on the terms.
- In all the Incoterms rules except C rules, the location specifies where the risk is transferred from the seller to the buyer.
- In C rules, the specified location determines the place up to which the seller is responsible to arrange and pay for the transportation costs, but it is not where the risk is transferred from the seller to the buyer.
- In D terms, the specified location is both the place up to which the seller is responsible to arrange and pay for the transportation costs and it is also where the risk is transferred from the seller to the buyer.
Note:
It is important to specify the location as precisely as possible. If there are 3 different ports in a location, mentioning the exact name of the port helps avoid future complications.
[append=108]
- EXW | Ex Works
- FCA | Free Carrier
- CPT | Carriage Paid To
- CIP | Cost and Insurance Paid To
- DAP | Delivered At Place
- DPU | Delivered at Place Unloaded
- DDP | Delivered Duty Paid
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