Incoterms® stands for “International Commercial Terms” and they layout the responsibilities between the buyer and seller when shipping goods purchased or even goods free of value. The terms are controlled by the International Chambers of Commerce who created the first term in 1936.
The terms have since been amended seven times in 1953, 1967, 1976, 1980, 1990, 2000 and now recently in 2010. The main reason for the most recent amendments are the advancement in e communications and the heightened security with the movement of goods across borders.
There are now more global sales to more countries which could now lead to more disputes when sales contracts are not adequately drafted, including the buyers and sellers obligations when shipping products. Incoterms® 2010 clearly defines buyers and sellers obligations to reduce the risk of any dispute.
Each term describes the task, cost and risk in the delivery of goods from the buyer to the seller and are now split into two groups making it slightly easier to understand.
The first group is Any Mode of Transport – EXW, FCA, CPT, CIP, DAT, DAP, DDP. These can be used for any modes of transport and multiple modes of transport if required to deliver the goods. These terms can also be used where a ship or barge is used as one mode of transport.
The second is Sea and Inland Waterways – FAS, FOB, CFR, CIF. One key point about these descriptions, is that the reference to crossing the “ships rail” has gone and is replaced with “on board” due to the uncertainty of the goods swinging whilst being loaded onto the ship and in effect the responsibility shifting during this process.
Incoterms® were traditionally used for International freight, but due to the expansion and development of trade blocks such as the EU, it was recognised that these terms could and now can be applied to “domestic freight”.
Therefore, due to the relaxed customs procedures within these trading blocks, Incoterms® clearly states in a number of places that the obligation to comply with import/export formalities is only required where applicable.
The increase use of Incoterms® in domestic business within sales contracts has increased, plus the USA are now using the terms more in place of the traditional Uniformed Commercial Code shipment and delivery terms.
The correct use of the terms not only improves communication about the responsibility for the shipment, but used correctly can have commercial benefits, affecting the competitiveness of a product once imported into the destination country.
Resultz Ltd provides the training to help all sizes of business understand the export documentation requirements and the commercial aspects of developing business overseas.
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