Incoterms, the International Chamber of Commerce, conducts periodic reviews of their terms of use, so it is essential to be aware of the latest changes before embarking on importing goods. The eleven rules that make up the Incoterms must be incorporated into sales contracts, as it is essential to determine the responsibilities of each party involved in an international trade operation, from importing and exporting companies to carriers.
Choosing the right Incoterms for each import operation avoids extra costs. An ally like Bull Importer, an expert in import management, is the best alternative to manage sales contracts between the exporter and the buyer of the imported goods
However, it should be noted that for Incoterms to be valid, they must be mentioned in the offer, in the sales conditions, or in the order confirmation. They can also be established separately. In any case, they must be specified in the contract, as they are not directly applicable. These international trade rules establish the responsibilities when transferring the goods between the importer and the exporter. Hence the importance of setting the Incoterms in the contract.
Incoterms for goods transportation
Incoterms are reviewed every ten years. The latest update was made in 2010 and came into effect in January 2011. Until the International Chamber of Commerce publishes new changes, these are the current Incoterms.
- EXW (Ex Works). The seller’s responsibility ends when they have made the goods available at their premises. The importer must handle all the costs and risks involved in transporting the goods to their destination.
- FCA (Free Carrier). The seller fulfills the delivery of the goods to the carrier, who must be contracted by the buyer. Importer and exporter must set the place of delivery and the name of the carrier to avoid errors.
- CPT (Carriage Paid To). The seller must pay for the transportation of the goods to the agreed place with the buyer, including expenses and import permits.
- CIP (Carriage and Insurance Paid). The seller agrees to pay for the transportation plus insurance against loss or damage of the goods.
- DAT (Delivered at Terminal). Specifies that the goods will be delivered after unloading at the destination port’s terminal.
- DAP (Delivered at Place). Indicates that the goods will be delivered to an agreed point in the destination country.
- DDP (Delivered Duty Paid). The seller agrees to deliver the goods with all export and import procedures completed but without unloading at the destination.
- FAS (Free Alongside Ship). The seller is only responsible for the goods until they are ready for loading onto the ship. Any incidents during loading are the buyer’s responsibility.
- FOB (Free On Board). The seller’s responsibility ends when the goods pass the ship’s rail without paying the freight. The seller must clear the goods for export.
- CFR (Cost and Freight). The seller handles all import costs and freight transportation to the destination port.
- CIF (Cost, Insurance and Freight). Specifies who is responsible for shipping, transportation, and insurance costs.
Regardless of the chosen Incoterm, at Bull Importer, we recommend following basic guidelines to avoid misunderstandings with the exporter.
- Sign a sales contract. Incoterms complement the international sales contract but do not replace it. The contract must be written in the recipient’s language. Incoterms determine each party’s responsibilities in the transaction.
- Include the term “Incoterms 2010”. It must be noted which year’s Incoterm applies to avoid any doubts that the most recent and current rules apply. The usual formula is to write the chosen Incoterm’s abbreviation (CIF, FOB, DDP…) followed by the agreed delivery point (city and country) and the phrase “Incoterms 2010.”
- Specify the destination accurately. The delivery place must be specified concretely and unambiguously. This way, we avoid confusion that could lead to significant additional costs not covered by insurance.
- Additional conditions. Incoterms allow for modifications to be added as additional conditions. However, this practice is not recommended as it undermines the purpose for which Incoterms were created.
- Means of transportation. Depending on the chosen means of transportation, a specific Incoterm can be selected. Generally, if more than one means of transport is used or the goods are shipped in a container, it is advisable to choose a versatile Incoterm.
