Incoterms is an abbreviation for “international commercial terms.” It refers to the international nomenclature used in the field of imports and exports that is valid everywhere and defines the rights and responsibilities of all parties involved in an import transaction.
The incoterms define the rights and responsibilities of the parties involved in moving goods from one country to another in a way that can’t be misunderstood. They are:
how much it will cost to get there, what insurance will cover
The Rules for
The definitions of these terms are very important because they show when ownership of the goods changes hands and who is responsible for any losses, damages, or costs related to the goods.
What are the subjects to which Incoterms refer?
Most of the time, three to five different things are involved in the transport of each material between two different countries:
The person who sells the goods and makes the documents needed for the export process is called the seller or exporter.
The person who usually has to make documents for import is the buyer or importer.
Rules for leaving
Departure port or airport
Carrier or freight forwarder who moves goods from one place to another and makes the paperwork needed for the move.
Ways to get around:
Company for Insurance on Freight
Getting there: port or airport
country of arrival’s customs office
Receiver
From China to Amazon FBA shipping
During negotiations to buy or sell something, it’s not enough to just agree on the price. It’s also important to know “who” will take care of the shipping and “who” will pay for it.
With INCOTERMS, it’s possible to know from the start, without the chance of making a mistake, who is responsible for what and what their responsibilities are during an international transaction. So, if you want to buy something from another country and ask a supplier for a quote, you must tell the supplier which Incoterm you plan to use. Depending on which Incoterm you choose, the price of goods will change by a lot—even by 50%.
What are the Incoterms
The Incoterms have changed over time, and this is the most recent version, which is from 2020.
Each Incoterms has two parts: a three-letter code and the name of a city. There are 11 Incoterms rules in place right now. They are divided into two groups based on the type of transportation they were made for:
Applicable to any type of transport:
EXW means “as is.”
FCA – Free Carrier
CPT means “carrying paid to.”
CIP stands for “Carrier and Insurance
DPU stands for “Delivered At Place Unloaded.”
DAP stands for “Delivered At Place.”
DDP stands for “Delivered Duty Paid.”
Applicable to sea/water transport:
FAS means “Free Aboard Ship” (named port of shipment)
Free on Board (FOB) (named port of shipment)
Cost and Freight (CFR) (named port of destination)
Cost, Insurance, and Freight (CIF): (named port of destination)
When you sign a contract with a supplier, you must make it clear which of these incoterms will be used in the international transaction so that you don’t get into legal trouble. Because of the fact that the following things will be clear from the start:
Place of Delivery
Means of transport, when the risk passes from the seller to the buyer, who pays for transport, insurance, and handling, and who gets the export/import documents.
Incoterms and DPU
As we’ve already said, there were some big changes to the Incoterms. The number stayed the same, but DAT was changed to DPU.
This way, we want to show that the goods don’t have to go to a terminal, but can go anywhere. In this case, the seller is responsible for making sure that the goods can be unloaded.
The level of CIP insurance coverage was also raised from level C to level A, and the Obligations were added.
The Obligations of Incoterms
A list of 10 responsibilities was also made for
Seller
Buyer
Vendor Obligations
Generalize them or get the paperwork ready.
Handover and delivery
Moving the risk
Transport
Coverage
Documents for delivery and transport
Clearance of customs for export and clearance of customs for import
checking, packing and marking
Allocating, dividing, and allocating costs
Alerts and notifications
Obligations of the buyer
Generalize them or get the paperwork ready.
Handover and delivery
Risks are shared.
Transport
Insurance
The shipping document and the delivery document
Clearance of customs for export and clearance of customs for import
Checking, packing and marking
Putting costs where they belong and dividing them up
Alerts and notifications
How to manage Incoterms without incurring in mistakes
If you want to buy things from another country, you should know what kind of contract you are signing and what your duties and the seller’s duties are.
Managing these kinds of processes well isn’t easy if you haven’t done it before. This is also because checking the documents needed to pass through customs in Europe can be very complicated because they vary depending on the type of product and its features.