Posted on 26 May 2016
Incoterms is an internationally recognised framework that creates business rules as an engagement gateway for traders to export.
They provide legal certainty by defining the buyer’s and seller’s responsibilities for arranging and paying for transportation, documentation, custom clearance and insurance.
Published by the International Chamber of Commerce (ICC), Incoterms help avoid costly misunderstandings.
Agreeing Incoterms is important because they clearly establish the “delivery point” in the contract between the buyer and seller - although bizarrely, it’s not mandatory to use them!
They state where the seller is deemed to have fulfilled their obligations in delivering goods to an agreed point and where in the delivery chain the buyer assumes responsibility for the goods.
Only when the seller knows where they have to deliver the goods can they accurately calculate a selling price and only when the buyer knows where they have to take responsibility for the goods can they accurately know their buying costs.
All this might seem like common sense but throw in language, culture and national differences and things can easily get misinterpreted.
The latest set of pre-defined Incoterms, published in 2011, are split into two distinct groups: Rules for any Modes of Transport and Rules for Sea and Inland Waterway Transport.
For UK exporters selling overseas for the first time, seeking expert advice about which Incoterms to base your sale upon will reap rewards and deliver peace of mind in the long-term.
GROUP 1 RULES FOR ANY MODES OF TRANSPORT
EXW - Ex-Works
FCA - Free Carrier (named place of delivery)
CPT - Carriage Paid To (named place of destination)
CIP - Carriage and Insurance Paid To (named place of destination)
DAT - Delivered at Terminal (named terminal at port or place of destination)
DAP - Delivered at Place (named place of destination)
DDP - Delivered Duty Paid (named place of destination)
GROUP 2 RULES FOR SEA AND INLAND WATERWAY TRANSPORT
FAS - Free Alongside Ship (named port of shipment)
FOB - Free on Board (named port of shipment)
CFR - Cost and Freight (named port of destination)
CIF - Cost, Insurance and Freight (named port of destination)
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