Incoterms: Rules for Trade
Logistics
by William Corley
Export America
What
to Note
The
latest Incoterms
include several
changes from the
previous edition
(1990). Incoterms now
specify the loading
and unloading
requirements of both
buyer and seller. They
also reflect
international
traders’ increased
use of intermodal
transportation. This
has led to simplified
delivery obligations
under the term FCA.
Meanwhile, FAS now
requires the seller to
clear the goods for
export. Under DEQ, the
buyer now must clear
the goods for import
as well as pay all
duties, taxes, and
other charges upon
import.
What
to Do
A
prudent exporter will
use terms of sale that
fit his needs, the
buyer’s wishes, and
export-import
requirements. Freight
forwarders, U.S.
Export Assistance
Centers, banks’
international
departments, and other
parties can provide
expert advice in this
regard. At the outset
of sales development
and export planning,
pay particular
attention to the mode
of transportation as
well as the location
of the transfer of
ownership. Beware of
unsuitable or
inappropriate
Incoterms, such as
“FOB factory” and
“FOB plant.” Take
a look at the handy
guide, think about the
meanings of port and
place, and check the
transportation mode
picture.
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Thirteen international
commercial terms (“Incoterms”)
describe the responsibilities
of buyers and sellers in
international trade. Incoterms
are definitions and guidelines
for sales contracts. They
address fundamental issues of
cost and risk allocation.
The International Chamber
of Commerce (ICC) has
published its Incoterms since
1936, and reference should be
made to the latest edition. As
terms of sale, Incoterms
facilitate commerce by
promoting understanding of the
specific, respective tasks of
trading parties. They define
the roles of buyers and
sellers in the arrangement of
transportation; they also
outline when transfer of
ownership of merchandise takes
place. Incoterms therefore
greatly influence the actions
of exporters, importers,
freight forwarders, and others
involved in international
trade.
Worldwide Use
Incoterms reduce disputes
as well as provide common
criteria for arbitration.
Customs authorities and courts
around the world recognize the
13 Incoterms as the standard
set of rules for global
commerce.
Each Incoterm has a
three-letter abbreviation and
usage with one or more modes
of transportation. Incoterms
range from the seller’s
minimal obligations (EXW—ex
works, named place) to the
seller’s maximal obligations
(DDP—delivered duty paid,
named place of destination).
Other common terms include FOB
(free on board, named port of
shipment), CIF (cost,
insurance and freight, named
port of destination), CPT
(carriage paid to named place
of destination), and DDU
(delivered duty unpaid, named
place
of destination).
Incoterms delineate in a
transaction who incurs which
charges and fees, extending
from product cost and
international freight to
import duty and inland freight
at the destination. Incoterms
also set guidelines regarding
documentary responsibilities
of the buyer and seller, from
product documentation and
bills of lading to commercial
invoices and export-import
licenses.
Complete Information
The information contained
in this article and its
sidebars is intended only as a
general guide and should not
be used as legal reference for
sales contracts or other
international trade
documentation. For more
information, obtain Incoterms
2000 (ICC Publication 560) at www.iccwbo.org.
Date Updated: March 27, 2007
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