Incoterms (International Commercial Terms) are internationally recognized trade rules standardized conditions governing the transition costs, risks and practical measures and responsibilities associated with the delivery of the goods from the seller to the buyer. The first adjustment was used since 1936. Meanwhile there have been several significant changes, period changes has changed from four to ten years. International Chamber of Commerce (ICC) in Paris adopted new rules 16th September 2010 under the name INCOTERMS 2010. The new rules apply from 1 January 2011. Changes to modify INCOTERMS 2000 are that the four rules are discarded - DAF, DES, DEQ, DDU and two new universal rules were introduced DAT, DAP. Total delivery terms was reduced from 13 to 11. It is these two conditions are more attractive use of INCOTERMS for intermodal transport, particularly container, which represents 96% of shipments in trading in international trade.
Depending on the nature of supply conditions are differentiated standards into four categories. New legislation introduced to facilitate the use of distribution according to the terms of delivery mode of transport:
- UNIVERSAL TERMS - EXW, FCA, CPT, CIP, DAT, DAP, DDP
- TERMS FOR WATERWAYS TRANSPORT (inland and sea) - FAS, FOB, CFR, CIF
Features delivery terms
EXW - Group E
Obligations of the seller are minimal, goods prepared for shipments, this group contains only one clause EXW. The seller does not pay the main transport. Buyer provides export customs formalities.
CFR, CIF, CPT, CIP - Group C
In the third group the letter C means that the seller bear some costs after the point where they share the risks of loss of or damage to the goods. This group includes clauses CFR, CIF, CPT, CIP. When used clauses group C, the seller fulfills his obligation to deliver when it handed over to the carrier and not when the goods reach their destination. This is called two-point clause. Securing the contract of carriage (CIF, CIP and insurance) borne by the seller, otherwise it is exempt from all other risks and costs (normal use letters of credit).
FCA, FAS, FOB - Group F
Letter F in the second group (FCA, FAS, FOB) means that the seller hands the goods over to the carrier and thus bear all risks and costs until the moment of delivery (Free of risk and expense to the buyer). In clauses F is seller must to procure the carriage of goods where the transmitted carrier (the section in front of the main transport for-carriage). Despite the fact that all clauses F is the conclusion of the contract of carriage responsibility of the buyer, may, in exceptional cases, to conclude this agreement and sellers, but at the expense and risk of the buyer. It becomes especially so when the nature of the goods and instead allow only one mode of transport or if the fee for the carriage of goods the same regardless of the means of transport.
DAT, DAP, DDP - Group D
The seller is responsible for the arrival of the goods at the agreed place of destination / import. Conditions on the basis of delivery. The letter D means that goods must reach the destination (Destination). In this group, according to the clauses of Incoterms DAT, DAP, DDP.
Using INCOTERMS 2010
The relevant clause is legally binding only if the parties (buyer and seller) agree on its application and incorporated it into the purchase agreement.
The actual contents of the clause is not sufficiently known generally. Clause shall be interpreted consistently. Clause is not correctly or consistently understood. Consequently, it is not respected by both parties. Any clause defines the obligations of the seller (A1-10) and the buyer (B1-10) in ten points.
- Delivery conditions determine to what point (s) bears the risks and costs of supply vendor, and where the risks and costs are transferred to the buyer. Delivery conditions governing standards for conclusion of commercial contracts and simplify the preparation of documentation, implementation arrangements, but also the provide commercial transaction itself (packing, loading, transport, unloading, insurance, etc.).
- They do not provide a moment of transition of ownership from the seller to the buyer, which is more associated with the payment terms or other contractual arrangements.
- Seller and the buyer can agree any terms of delivery. For simplification were created standards that have uniform interpretation and therefore do not require extensive contractual arrangement.
- Thus simplification lies in the fact that trading partners appear in a contract or order internationally used abbreviation delivery clause and specify only the place of delivery. Both parties are clear where the goods are to be delivered, who will arrange the transportation, who bears the costs of transport and insurance, possibly who will pay any damages caused during shipment.
- In import customs clearance delivery conditions play a key role in determining the customs value, because it speaks volumes about what costs are included in the price of goods and what, by contrast, should be added.
Very important for the correct use of Incoterms 2010 in practice is the application of these fundamental principles:
- Incorporation of rules into a specific contract, which becomes legally binding (for example rule, the place, Incoterms 2010);
- Choosing the appropriate rules in respect of goods, means of transportation, possibly obligation to include transport, insurance and etc.;
- Examination of the text of the rule for reassurance that this is appropriate to use (changing the English version, language differences = risk, habits law for example in shipping ports and the etc.);
- When used to determine as accurately place / port as possible (for example: FCA, seller's premises at 142 Holborn, London, Great Britain, EC1N 2SW, Incoterms 2010). Sometimes determined too a specific point or using the GPS co-ordinates in;
- Remember that the clauses are short, determining the obligation to conclude a contract of carriage or insurance contract and transition costs. Clause does not address the transition of ownership, breach of contract, which addresses the sale agreement. Incoterms do not contain a description of the goods, guarantees, commitments, price and payment, payment title, addressed intellectual property right, jurisdiction.
- It should be emphasized that local laws may invalidate some aspects of the contract and also the impact of the chosen Incoterms