Explained.
Incoterms, short for International Commercial Terms, are a set of standardized international trade terms used in contracts for the sale of goods. They were created by the International Chamber of Commerce (ICC) to provide a common set of rules and guidelines to clarify the responsibilities and obligations of buyers and sellers in international transactions.
Incoterms define various aspects of the transaction, such as the delivery point, the transfer of risks and costs, and the division of responsibilities between the buyer and the seller. They are widely used in international trade to ensure clarity and avoid misunderstandings or disputes between the parties involved.
The most recent version of Incoterms is Incoterms 2020. It consists of 11 trade terms, each represented by a three-letter code, such as EXW, FOB, CIF, etc.
Here is a brief explanation of some commonly used Incoterms:
The seller makes the goods available at their premises, and the buyer is responsible for all transportation and associated costs.
The seller is responsible for delivering the goods to a named place of destination and pays for all costs, including import duties and taxes.
The seller is responsible for delivering the goods to a named place or carrier, and the risk transfers to the buyer at that point.
The seller delivers the goods when they are placed alongside the vessel at the named port of shipment. The buyer is responsible for loading the goods onto the vessel and assumes the risk from that point.
The seller arranges and pays for transportation to a named destination, but the risk transfers to the buyer upon delivery to the carrier.
The seller delivers the goods when they are loaded onto the vessel at the named port of shipment. The risk transfers to the buyer at that point.
Similar to CPT, but the seller also arranges and pays for insurance during transportation.
The seller arranges and pays for the cost of goods and transportation to deliver the goods to a named port of destination. However, the risk transfers to the buyer when the goods are loaded onto the vessel.
The seller is responsible for delivering the goods to a named place of destination, but the buyer assumes the risk and any additional costs beyond the destination point.
Similar to CFR, but the seller also arranges and pays for insurance during transportation.
The seller is responsible for delivering the goods to a named place, and they must unload the goods at the agreed-upon location. The risk transfers to the buyer upon unloading.
Each Incoterm specifies the obligations of the buyer and seller regarding the delivery, transportation, and risk transfer at a particular point in the shipment process. They also indicate which party is responsible for specific costs, such as packaging, loading, unloading, customs duties, and transportation insurance.
It is worth noting that Incoterms do not address other contractual terms or the transfer of ownership of the goods. They are focused primarily on the logistics aspects of the transaction.
When engaging in international trade, it is essential for both buyers and sellers to clearly define the chosen Incoterm in their contracts to avoid any misunderstandings or disputes regarding the rights, responsibilities, and costs associated with the delivery of goods.
