All about Incoterms
All about Incoterms
Incoterms is a unified set of rules in the form of a dictionary with a list of basic terms in the sphere of foreign trade relations. These concepts highlight the rights and obligations of counterparties under a sale and purchase agreement, namely, on the transfer of products from an exporter to an importer, liability for damage or loss, transport insurance and customs clearance.
Incoterms is considered the basic standard for international business. The organization of foreign trade operations is carried out using special terminology. In order to avoid misinterpretation of concepts and the subsequent emergence of disputes, participants in a commercial transaction should use uniform Incoterms rules that are official in nature. The terms in them are represented as three-letter abbreviations resulting from the abbreviation.
What is Incoterms?
Incoterms 2020 is a trademark of ICC. The first version of the normative act was issued in 1936, after which it was repeatedly amended and supplemented until 2020.The new edition came into force on 01.01.2020 and will remain relevant during the current decade, until 2030.The document was recognized by the UN Commission on International Trade Rights and is duplicated in the ICC in 31 languages.
Participants in the transaction can also use earlier versions of Incoterms - 2010, 2000. When writing down the terms of delivery in the contract, it is important to indicate the selected edition of the rules.
Key principles governed by terms
Incoterms does not replace a foreign trade agreement, but only greatly simplifies it. The document does not regulate the conditions for the transfer of ownership of a consignment, does not establish the consequences of non-fulfillment of obligations by the parties to the contract, does not indicate the cost of a unit of production. He distributes obligations between the parties to the transaction.
The main principles of Incoterms are:
- Separation of transport costs for the carriage of goods: it is specified which costs and up to what period are entrusted to the supplier and the buyer.
- Transfer of risks in case of loss or damage to cargo: it is specified when the responsibility for damaged products is transferred from the supplier to the recipient.
- Date of delivery of the goods: the moment of actual receipt of the goods to the recipient is established and the fact of the seller's compliance with the agreed delivery times is determined.
ICC as a developer of Incoterms
The International Chamber of Commerce was established in 1919 in Paris to solve the problems of business development. ICC serves this purpose to this day, bringing together companies from 130 countries. The ICC was created by an initiative group of entrepreneurs, which decided to achieve economic prosperity after the First World War. At that time, there was no single set of rules for regulating trade and financial relations. Bridging this gap through the private sector became the main idea of the ICC founders. The largest achievements of the ICC are considered the Arbitration Rules, the Code of Practice for Advertising and Marketing Communications, the Unified Rules and Customs for Documentary Credit and, of course, Incoterms.
Basic document concepts
Incoterms uses an ordered system of concepts. Let's consider their interpretation.
Consignor - the person transferring the cargo for transportation; a person who draws up a contract for the provision of transport services with a carrier.
Delivery - the term is used in 2 cases at once: fulfillment by the seller of obligations for the delivery of goods and compliance by the recipient with the conditions for acceptance.
Payable Fees - Contributions required in the importation process, including the services of a customs broker and freight forwarder.
Ports, points, places, premises - points of arrival of products.
In terms of shipping, the terms Port of Shipment and Port of Destination are used. In other areas, the concept of Place is used. In certain situations within the Port or Location, the Point is additionally indicated. If the supplier's place is taken as a delivery point, the concept of the seller's room is used.
Ship and Vessel are identical provisions applied in the field of maritime transport.
Verification - the term is used to refer to the seller's obligation to deliver products on time.
Inspection - examination of the goods before shipment in order to analyze it for consistency with the provisions of the contract or official conditions.
Classification of Incoterms rules
Based on the definition of the obligations of the parties in relation to the transportation of the delivered cargo, the trade terms of Incoterms are divided into the following groups:
- E - the goods are transferred from the supplier's production or ex-warehouse, the obligations are transferred to the recipient at the place of dispatch. The supplier must deliver the product to the recipient directly at the manufacturing facility. At the same time, he is not responsible for loading goods onto transport, he is not engaged in customs clearance. Payment for the transportation of goods is imposed on the recipient.
- C - the supplier pays for the main carriage, obligations are transferred at the arrival terminals. The supplier must conclude a contract for the carriage of goods, but does not assume the risk in case of damage or death. All risks and associated costs after delivery to the carrier are borne by the recipient.
- F - the recipient pays for the main carriage, obligations are transferred at the terminals of dispatch. The supplier must place the goods at the disposal of the carrier. The hiring of the latter is carried out by the forces of the recipient.
- D - full delivery, obligations are transferred to the recipient. The supplier assumes all costs and risks up to the arrival of the products in the recipient country.