INCOTERMS
INCOTERMS, which stands for International Commercial Terms, are a set of standardized trade terms that define the responsibilities, risks, and costs between buyers and sellers involved in international trade. These terms provide clarity and consistency in international transactions by establishing a common understanding of the obligations and liabilities of each party.
INCOTERMS were developed and are maintained by the International Chamber of Commerce (ICC). They are regularly updated to reflect changes in global trade practices. The most recent version is INCOTERMS 2020.
Here are some key points to understand about INCOTERMS:
- Scope: INCOTERMS specify the tasks, costs, and risks associated with the delivery of goods from the seller to the buyer. They do not address the transfer of ownership or payment terms
- Responsibility: INCOTERMS determine which party is responsible for various aspects, such as transportation, insurance, customs clearance, and loading/unloading of goods. The terms clearly define the obligations of the seller and the buyer at each stage of the shipment
- Risk Transfer: INCOTERMS indicate when the risk of loss or damage to the goods is transferred from the seller to the buyer. This is important for determining who bears the responsibility and cost if any issues occur during transportation
- Costs: INCOTERMS specify which party is responsible for specific costs, such as transportation costs, export/import duties, insurance premiums, and handling fees. They help allocate expenses between the seller and the buyer
- Classification: Each term has its own specific conditions and implications, which should be carefully understood and agreed upon by both parties. INCOTERMS are divided into 4 categories:
1. E (Departure)
EXW (Ex Works): The seller's responsibility is to make the goods available at their premises. The buyer is responsible for all subsequent transportation, costs, and risks
2. F (Main Carriage Unpaid)
- FCA (Free Carrier): The seller delivers the goods to a carrier nominated by the buyer at a specified location. The seller is responsible for export clearance, while the buyer assumes responsibility from that point onward
- FOB (Free On Board): The seller delivers the goods, cleared for export, on board the vessel at the named port of shipment. The buyer assumes all costs and risks from that point forward
3. C (Main Carriage Paid)
- CPT (Carriage Paid To): The seller delivers the goods to the carrier or another person nominated by the seller at a specified place. The seller covers the transportation costs up to that point, while the buyer assumes responsibility from that point forward. Commonly used for ROAD shipments of goods
- CFR (Cost and Freight): The seller delivers the goods on board the vessel at the named port of shipment, covering the cost of transportation to the port of destination. The buyer assumes all risks from the port of shipment. Mainly used in cases of SEA transportation of goods
- CIP (Carriage and Insurance Paid To): Similar to CPT, but the seller also includes insurance against the buyer's risk of loss or damage during transit
- CIF (Cost, Insurance, and Freight): Similar to CFR, but the seller also includes insurance against the buyer's risk of loss or damage during transit
4. D (Arrival)
Each category represents a different point in the transportation process
- DAT (Delivered at Terminal): The seller delivers the goods, unloaded, at a named terminal at the destination port or place. The seller is responsible for import clearance, while the buyer assumes responsibility from that point forward
- DAP (Delivered at Place): The seller delivers the goods, unloaded, at the buyer's nominated place of destination. The seller bears all risks and costs until the goods are ready for unloading at the destination
- DDP (Delivered Duty Paid): The seller delivers the goods, cleared for import, at the buyer's nominated place of destination. The seller is responsible for all risks, costs, and duties associated with delivering the goods. INTRANSOLUX provides transport services on DDP terms
It's important to note that the use of INCOTERMS is not mandatory, and parties involved in international trade can choose to define their own terms and conditions. However, using INCOTERMS helps avoid misunderstandings, reduces risks, and facilitates smoother transactions by providing a standardized framework for international trade.
