What is Incoterms?

Anyone involved in international trade knows very well the Incoterms phenomenon. It actually means International Trade Conditions. It regulates the process between sellers and buyers, and more precisely ensures that there is no confusion. Incoterms is a very useful tool for communication and for establishing correct relations in the process of goods delivery between different participants.

Incoterms is an impartial and universal representation. Assists the exporter and importer in the execution of each transaction as regards the part of the costs, logistics and management of transport and the possible risks with the shipment. And, of course, basically the responsibility that goes all the way through the product – from the time of loading the port to the receipt in the other country. Incoterms also monitor and protect obligations between the two parties.

Duties and responsibilities are most important here and are as follows:

• The point of delivery – this element of Incoterms indicates the moment when responsibility and ownership passes from seller to buyer. Ie Incoterms determines the point of delivery between the two countries

• Formulas for Import and Export – this is where Incoterms plays an important role in the process of delivery between two countries. Indicates that country which has the obligation to settle the formalities for the import and export of goods

• Transport costs – again international trade conditions indicate the country that will have to pay the freight costs of the goods. In the presence of more modes of transport, it is re-determined which party for which transport exactly to pay and what amount

• Insurance costs – Incoterms has the power to determine the person (sender or recipient) who will bear the insurance costs in this case without the knowledge of Incoterms it would be very difficult to manage international trade successfully. These conditions are extremely important and are present in any consignment. They have features that affect not only sellers and buyers, but also lawyers, insurers and carriers.

Anyone wishing to do international trade, no matter the type of transport, should read every detail from Incoterms. Otherwise, many unpleasant situations may arise with respect to the non-performance of the obligations and responsibilities of some of the parties. There is enough detailed information in the following lines, so do not miss the opportunity to get acquainted with the important aspects of Incoterms.

The Incoterms 2010

Incoterms 2010 includes 11 trading terms divided into two main categories. The first allows for any type of transport, while the second is specially designed for shipments by water. Before 2010 Incoterm are the terms of this by 2000 from 2018, however, the whole world uses and observe strict rules of ICC from 2010 last update focuses on some major changes – removes the following conditions:

• DAF (Delivered border)
• (DDU) Delivered duty unpaid
• (DES) Delivered ex ship
• (DEQ) Delivered Ex Quay

Requirements for Incoterm 2010 rules

It is a very common mistake not to comply with certain requirements when signing an international trade agreement. Here are the steps you need to take to be correct:

• Specifying your starting point – should be as precise as possible so that no controversy arises on this issue
• Choosing the right Incoterms – be careful when deciding on Incoterms, as you may subsequently have to pay a hefty cost. It is important that the goods are determined by the exact size, type and weight
• The use of a specific Incoterm should be included in the sales contract – only then is it valid and of course after the contract has been signed by the two parties involved
• The rules do not imply a full sales contract – there are other conditions that can be separately

Incoterms, short definition and differences of each

EXW Incoterms: ex-works

Ex-works mainly determined the point of delivery, the only difficulties you encounter are cross-border SD mall in terms of exports. The term EXW is used in the preparation of the initial offer for the sale of goods – it does not include costs and the seller is happy because there are fewer responsibilities than the buyer.

The seller must provide the goods at the place of delivery, and the buyer assumes responsibility for loading, transporting, preparing the necessary export documentation and receiving the goods through customs.

DDP Incoterms: Supplemental Delivery Duty

With DDP, the terms of delivery are the opposite of Ex-Works. Here the seller assumes full responsibility for the delivery of the goods to the buyer. Again, there may be some restrictions on the cross-border shipments that the seller has to deal with. In most cases, however, this is a great difficulty for him, especially if he is not sufficiently familiar with the import conditions of the country concerned. Very often a freight forwarder is used for these things.

The buyer pays the costs of the goods needed to receive them – these are import taxes and duties. However, this duty paid imposes obligations on the seller, he must transport the goods to the agreed place with the buyer and cover insurance and transport rates. The goods are then transferred as the responsibility and property of the buyer and he is responsible for their unloading.

FCA Incoterms: Free Carrier

By specifying FCA incoterms in the international trade agreement, the two parties agree on a place and a carrier for the delivery of the goods. The agreed delivery point for the goods released for export is what determines the responsibility of the seller and the buyer. There are two options for loading here – directly from the seller’s warehouses or elsewhere. In the case of loading from his warehouse, he assumes responsibility for proper and trouble-free loading, but otherwise the seller is not responsible.

FCA incoterms assumes that the buyer is aware and will fulfill his obligations to arrange the transport part, as well as to bear the cost of export and import to the respective country.

FOB Incoterms: Free on board

FOB is widely used in maritime transport. In this case, the seller has the task to advance the state tax to the country of origin. This is because it will transport the goods to a vessel selected by the buyer.

The responsibility after loading the goods is divided almost in solidarity. The seller pays the cost of loading and transporting the goods and the cost of export from the country, and after the transfer to the buyer’s account, the risks are automatically transferred to the buyer. It is also clear that the buyer has to pay the import costs.

CFR Incoterms: Costs and Freight

CFR terms are pretty much the same as FOB. The seller is obliged to pay the costs and to transport the goods to the designated port of destination. As soon as the goods are loaded onto the ship, the risks are transferred to the buyer. You have now become aware of the subtle difference mentioned above. It is important to note here that the party organizing the transport does not have to bear the risks of delivering the goods.

CIF Incoterms: Cost & Freight Insurance

CIF Incoterms comes very close to CFR. However, with CIF, the insurance paid by the seller is added. This is a great advantage for the buyer as it covers the various risks of transit consignments. This is important because this risk is automatically transferred from the sender to the buyer as soon as the shipment is loaded onto the selected carrier. However, it is the seller who arranges the shipment.

FAS Incoterms: Free with ship

At FAS Incoterms, the seller is responsible for delivering the goods to the buyer who placed the order. All goods must be shipped with the buyer’s ship, the seller loads them and is released as soon as the transit goods leave. It is the buyer who is responsible for the possible damage or loss of goods as well as the insurance costs.

Incoterms CPT: Carriage payable to

CPT assumes the seller pays the carriage. It regulates the carrier, but the risks quickly pass into the buyer’s hands. As soon as they are delivered to the carrier who will deliver the particular shipment. From this it becomes clear that the buyer assumes greater responsibility for the delivery of the goods to the final destination.

CIP Incoterms: Shipping and Insurance

This model is primarily the responsibility of the buyer, although the seller remains unobstructed at all. His care is the financial part – paying the shipping tariff and insurance costs to the agreed delivery point. However, when the goods are handed over to the selected carrier, the seller automatically dies. Liability and risks are transferred entirely to the buyer.

Incoterms for DAP: On-site Delivery (DAP)

DAT, generally speaking, creates a situation where the seller has an obligation to cover almost all costs of delivering the goods to the buyer. This includes export taxes, insurance costs, shipping and port taxes to the destination. In addition to cost, possible risks to the goods are also the seller’s responsibility. The only expenses from which he is exempted are those for the importation of the goods and for the landing.

Common Incoterms Contract Issues

• Usage Obsolete Used
• When transporting goods by road or by air, more people prefer to use CIF or FOB
• Sometimes more responsibility is assumed than imposed by Incoterms
• Some parties make the mistake of choosing Incoterm by trade type and incorrect abbreviation when quoting
• Incoterms is wrongly quoted in contracts as well – then the contract management itself is complicated, as well as the assignment of proper obligations to the main participants in international auctions it (sellers and buyers)
• Failure to consider the mode of transport before the particular Incoterm and others are specified