1. purpose
1.1. only deal with the relation between the seller and buyer
1.2. provides a set of international rules for the interpretation of the most commonly used trade terms in foreign trade
2. objectives
2.1. provide universally accepted vocabulary
2.2. facilitate international commercial exchanges
2.3. reduce risk of misunderstanding, disputes, and ligitation
3. reasons why Incoterms understanding is vital for a undisrupted global supply
3.1. incoterms reduce risk
3.1.1. Many would argue clearly defined language in a contract is sufficient to ensure all parties maintain their obligations in international trade. However, language barriers and connotations of terms in one location may not be reflective or understood in another location.
3.2. failure to use incoterms leads to problems
3.2.1. Parties in international shipping must understand how Incoterms vary. Failure to understand the correct definition of each Incoterm used will lead to problems throughout the subsequent supply chain. Furthermore, misused Incoterms may affect payment of goods, delivery schedules, increased costs, poor inventory control, and negative customer interactions. From distribution centers to shipping recipients, improper or missing Incoterms dramatically disrupts the flow of goods and damages a given company’s reputation.
3.3. incoterms affect monetary gain and competitive advantage
3.3.1. Since Incoterms define the monetary and procedural aspects of all international shipping practices, Incoterms are essential to ensuring proper, timely payment of goods and services. When Incoterms are not used correctly, a supply chain entity is not fully accepting payment for all goods and services. This occurs as changes and misunderstandings in differing cultures clash over responsibilities.
3.4. incoterms charge and vary in responsibilities
3.4.1. Incoterms are updated every 10 years to reflect changes in the global supply chain. Typically, the responsibility of defining Incoterms for a given contract apply to the buyer. However, the responsibility of using Incoterms correctly shifts from buyer to seller and depends upon the exact nature and type of transport employed.
4. what is incoterms ?
4.1. The Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce relating to International commercial law.
5. importance
5.1. both will know their responsibilities well
5.2. know the charge bear by both parties
5.3. control the amount of fees being charged
5.4. control and reduce risk of transfer product
6. organization of incoterms
6.1. “E” term – Seller makes the goods available to the buyer at the seller’s premises or other place named by the seller
6.1.1. EXW(Ex works) .
6.1.1.1. seller responsible to make the goods available and packing the goods. the seller is not responsible to loading good to vehicle.
6.2. “F” terms – Seller is responsible to deliver the goods to the export shipment point and carrier designated by the buyer
6.2.1. Free Carrier (FCA) .
6.2.1.1. FCA means that the seller fulfils their obligation to deliver when the goods are handed, suitably packaged and cleared for export, to the carrier, an approved person selected by the buyer, or the buyer at a place named by the buyer. Responsibility for the goods passes from seller to buyer at this named place.
6.2.2. Free Alongside Ship (FAS)
6.2.2.1. the seller clears goods for export and places them alongside the vessel at the named port of departure. The buyer is responsible for loading the freight onto the vessel, as well as handling local carriage, discharge, import formalities and duties and onward carriage to the final destination.
6.2.3. Free On Board (FOB)
6.2.3.1. the seller clears the goods for export and ensures they are delivered to and loaded onto the vessel for transport at the named port of departure. The buyer takes over risk and costs, including import clearance and duties, as soon as the goods are loaded onto the transport vessel at the port of departure.
6.3. “C” terms – Seller is responsible for contracting carriage of goods to the place of destination, but does not assume risk of loss or damage to goods, or additional costs due to events occurring after shipment
6.3.1. Carriage Paid To (CPT)
6.3.1.1. rules require the seller to clear the goods and arrange carriage to the named place of destination. The seller does not need to obtain or pay for insurance. Under CPT rules, the seller’s risk ends, and the buyer’s risk begins
6.3.2. Carriage and Insurance Paid To (CIP)
6.3.2.1. the seller assumes all risk until the goods are delivered to the first carrier at the place of shipment(not the place of destination). Once the goods are delivered to the first carrier, the buyer is responsible for all the risk. seller is responsible for the cost of carriage as well as all-risk insurance coverage until the freight reaches the named place of destination risks.
6.3.3. Cost and Freight(CFR).
6.3.3.1. the seller is required to clear the goods for export, deliver them onboard the ship at the port of departure, and pay for transport of the goods to the named port of destination. The risk passes from seller to buyer when the seller delivers the goods onboard the ship. The buyer is responsible for paying all additional transport costs from the port of destination, including import clearance and duties.
6.3.4. Cost, Insurance and Freight (CIF)
6.3.4.1. the seller delivers the goods, cleared for export, onboard the vessel at the port of shipment, pays for the transport of the goods to the port of destination, and also obtains and pays for minimum insurance coverage on the goods through their journey to the named port of destination. The buyer assumes all risk once the goods are on board the vessel for the main carriage; however, they don’t take on any costs until the freight arrives at the named port of destination.
6.4. “D” terms – Seller is responsible for all costs and risks associated with delivering goods to the named place in the country of destination
6.4.1. Under Incoterms 2020, the rule formerly called Delivered at Terminal (DAT) is now referred to as Delivered at Place Unloaded (DPU).
6.4.1.1. It refers to the seller delivering the goods, once unloaded from the arriving means of transport. Goods are placed at the disposal of the buyer at the named terminal, at the named port or place of destination
6.4.2. Delivered at Place (DAP)
6.4.2.1. the seller is responsible for delivery of the goods, ready for unloading, at the named place of destination. The seller assumes all risks involved up to unloading. Unloading is at the buyer’s risk and cost.
6.4.3. Delivered Duty Paid (DDP)
6.4.3.1. the seller assumes all responsibilities and costs for delivering the goods to the named place of destination. The seller must pay both export and import formalities, fees, duties and taxes. The seller is not obligated to insure the goods for pre-carriage or main carriage. The buyer is free of any risk or cost until the goods are unloaded from the vehicle at the named place of destination, usually the buyer’s place of business