International trade transactions can be extremely complex. In order to avoid misunderstandings, it is important to clarify who shall bear specific responsibilities, risk and cost, and who should perform specific tasks in each activity. Following this demand a collection of guidelines came to life, called Incoterms, for which a new, sixth version was released in January this year.
What’s Incoterms?
The International Chamber of Commerce – ICC was founded in 1919 with the aim of making business clearer and more predictable, fully representing the interests of businesses. The different practices and legal interpretations of traders worldwide made it necessary to lay down common rules and directives. Therefore, the ICC in 1936, has decided to establish uniform standards that can easily be applied in international trade.
A universal foreign trade standard that applies throughout the world…
Incoterms (longer known as International Commercial Terms) is a so-called foreign trade standard, which is included in the transport contract and regulates the rights of the seller and buyer, and their obligations. So it determines how the goods purchased go from the seller to the buyer. A huge advantage is that there’s no need to discuss delivery terms for too long in the contract, just refer to the appropriate Incoterms clause. It does not matter if your trading partner is in Alaska or Uzbekistan as these global guidelines are known and accepted everywhere.
The collection includes 11 conditions, stated in 3 letter abbreviations. The rules are classified in 4 categories, to groups ‘E’, ‘F’, ‘ C ‘ and ‘ D ‘. By means of transport, clauses may apply to sea/inland waterway or for multimodal transport forms.
The new, sixth version took effect on 01.01.2020
Incoterms is renewed every 10 years in order to fully adapt to current business practices. The sixth version was issued this January.
The new 2020 version is available in 29 languages – You can buy the English document in e-book format here (official page).
The 11clauses mentioned above are as follows:
- EXW (EX Works)
- FCA (Free Carrier)
- CIP (Carriage and Insurance Paid To)
- CPT (Carriage Paid To)
- DAP (Delivered at Place)
- DDP (Delivered Duty Paid)
- DPU (Delivered at Place Unloaded)
- FAS (Free Alongside Ship)
- FOB (Free On Board)
- CFR (Cost and Freight)
- CIF (Cost Insurance and Freight)
Categories by transport modes:
- Incoterms for any form of transport: EXW, FCA, CPT, CIP, DPU, DAP and DDP
- Incoterms for only sea and inland waterway transport: FAS, FOB, CFR and CIF
Some important changes compared to 2010:
- DPU, instead of DAT – Specifies that in addition to the terminal, other locations may be used for the delivery of the goods.
- FCA – The bill of lading is issued after loading.
- Safety obligations get an even bigger emphasis.
More about the 4 most frequently used clauses
#1 EXV – Ex-Works: Almost all costs and risks are borne by the buyer. The seller has essentially the task of making the goods available to the buyer within the contractual period, properly packaged and transported.
#2 DAP – Delivered at Place: The seller shall fulfil his obligation if he makes the goods available to the buyer at the named place of destination, ready for unloading.
#3 DDP – Delivered Duty Paid: The seller shall be obliged to deliver the goods to the destination and shall bear the related costs and risks, including payment of customs duties.
#4 FCA-free Carrier – Delivered Free of Charge to the Carrier: Delivery of goods to the carrier of the buyer is the duty of the seller. The place for unloading can be of several types. If this place belongs to the seller, the goods are actually delivered when they are loaded onto the means of transport provided by the buyer. If this place is not in the possession of the seller: delivery is considered to be completed when loading on the means of transport, which is ready to unload the goods at the designated place. In this case, an additional condition is the presence of a responsible person appointed by the buyer or seller.
No matter which mode of transport you choose, we will prepare your goods for transport.
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