The term Incoterms stands for “international trade clauses” and regulates the rights and obligations of buyers and sellers in international purchase and contractual relationships. The clauses have been published by the International Chamber of Commerce (ICC) since 1936 and revised at irregular intervals, usually about every ten years. The current version 2020 has been in force since January 1, 2020. Here you will find everything you need to know about this topic! [1]
Incoterms are a series of contractual provisions developed for the international trade in goods. They serve to standardize and expedite trade between companies in different countries. The Incoterms are recognized worldwide and are recommended by international organizations (UNCITRAL, UNECE, etc.), but do not have the status of a formal UN agreement. They are used to determine which party is responsible for the costs of transportation and insurance. Incoterms are components of sales contracts (contracts for the purchase of goods) and primarily govern delivery, costs and risk transfers.
In logistics, Incoterms are frequently used to govern the rights and obligations when sending goods. These are a set of international agreements that may seem a bit complicated at first glance. However, once you understand the rules, it is easy to use Incoterms. The rules for Incoterms were originally established by the International Chamber of Commerce (ICC) and have been under the protection of the WIPO agreement for over 60 years. [2]
Incoterms provide a set of rules that are clearly defined for all parties. If an Incoterm is agreed upon when selling a good, it defines the rights and obligations of the parties with regard to the cost and risk of shipping. For example, under the Incoterm EXW (Ex Works), the seller is not allowed to increase the price to cover shipping costs. These rules help the parties avoid disagreements and ensure that all parties meet their obligations. It is extremely important that both parties are aware of the application of the Incoterms and apply them correctly. It is therefore advisable to talk about this when concluding a contract and to put everything in writing. It is also helpful to consult an expert in international trade to ensure that all relevant information is included. When choosing the right Incoterm, it is also important to consider what costs may be incurred by the seller or buyer. For example, some Incoterms require the buyer to pay shipping and transportation costs; however, others allow the seller or buyer to pay these costs themselves. It is therefore important to understand the cost benefits that can result from choosing the right Incoterm. In some cases, it may be advantageous to use several different Incoterms in one contract. There are many more details about the use of Incoterms - such as what documentation is required and which shipping method is chosen - but given the complexity of the issue, experts strongly recommend seeking the advice of a professional. Especially when exporting or importing goods abroad, one should always seek professional help to minimize legal disputes as well as financial risk. [3]
There are a total of eleven different Incoterms, which are divided into two categories. The first category includes all modes of transport. The seven clauses EXW, FCA, CPT, CIP, DAP, DPU, DDP apply to every mode of transport. There is a separate category only for sea transport (including inland waterways), which includes the four clauses FAS, FOB, CFR, CIF.
Incoterms (International Commercial Terms) are an international set of trade terms that define how the costs and responsibilities for the purchase and sale of goods are shared between Purchaser and Seller. They were originally issued by the International Chamber of Commerce committee in 1936. The current version of the Incoterms, known as Incoterms 2020, was published on September 16, 2019 and contains 11 different clauses. The 11 Incoterms can be categorized into 4 groups. Each of these term classes has specific instructions about the costs, responsibilities and risks of the seller and the buyer:
It is important to note that each country has its own legal requirements when it comes to importing/exporting goods. Therefore, before buying or selling products abroad, make sure you have all the necessary information about the respective jurisdiction. You should also ensure that you have considered all relevant fees and taxes before entering into a contract. [4]
The use of Incoterms is crucial to clarify rights and obligations between buyer and seller in international trade contracts. When choosing the right Incoterms, a number of factors must be taken into account, such as the type of transport or the structure of the supply chain network. Incoterms are included in the commercial contract between buyer and seller and describe the obligations of both parties in terms of transportation, insurance, duties, shipping documentation, customs formalities, etc. Incoterms also determine when the risk of loss of goods passes from the seller to the buyer. The difference between Incoterms lies mainly in which tasks the buyer and which tasks the seller have to take over. Depending on which Incoterm is used, one party may have to take on some or all of the logistics tasks - from organizing transportation to preparing necessary documents. When selecting a particular Incoterm, buyers and sellers should carefully consider and ensure that it meets their specific needs. The wrong Incoterm can cause costly mistakes and create significant legal problems. Therefore, it is important to work with an expert who can help you select the right Incoterm. In addition, it is very important that buyers and sellers know the regulations of their respective countries. It is not advisable to carry out international trade transportation without a thorough knowledge of all relevant laws and regulations regarding customs duties and taxes. It is therefore advisable to involve specialized consultants or law firms to ensure that the laws are complied with. In summary, the correct application of Incoterms provides you with all the information about the delivery process, as well as rights and obligations of all parties involved - from the manufacturer to the end user.
Incoterms define the responsibilities and rights of the parties in an export or import transaction. There are different types of Incoterms used for different trade practices. Depending on the nature of the transaction, the terms may vary, so it is important to be aware of the relevant Incoterms before entering into a contract.
The differences between the Incoterms are mainly in the rules and responsibilities regarding transportation and customs clearance. Some Incoterms describe where the goods are shipped from, others describe when the buyer receives the goods and whether the buyer is responsible for customs clearance. Some types of Incoterms are also used to determine which costs must be paid by the seller or the buyer.
In most cases, Ex-Works Incoterms differ from the Free Carrier Incoterm in that the buyer is given more responsibility for transportation and customs clearance. With the Free Carrier-Incoterm, the buyer is allowed to hire a freight forwarder or courier service himself. In contrast, with the ex-works Incoterm, the buyer collects the goods directly from the seller and is responsible for all delivery costs incurred. Another difference exists between the Cost Insurance and Freight (CIF) Incoterm and the Free On Board (FOB) Incoterm: The CIF Incoterm states that the seller is responsible for all delivery costs incurred as well as insurance costs; in contrast, with the FOB Incoterm, the buyer is responsible for all delivery costs incurred as well as insurance costs.
The handling of tax matters can also vary depending on the type of transaction. In the Delivery Duty Paid (DDP) incoterm, the seller steps into the role of payer; therefore, he must pay for all necessary tax duties and also handle all related documentation. With all this work, it is his responsibility to ensure that all legal requirements are met, and no mistakes are made.
In contrast, for Delivery Duty Unpaid (DDU) Incoterms, the buyer must handle the fiscal matter himself. There are other differences between the various Incoterms depending on the transaction - therefore, interested parties should inform themselves about their respective details before concluding any contract in order to exclude legal consequences for the protection of all parties! [5]
In logistics, Incoterms are used to regulate the responsibility for the transport of goods between the buyer and the seller. The Incoterms determine who bears which costs and when the goods are handed over. In addition, the Incoterms provide information about where the goods are unloaded and whether the buyer has to transport the goods further or pick them up themselves. Frequently used Incoterms include EXW, FOB, DAP and DDP.
In practice, Incoterms are used for a wide range of commercial transactions. Below are some examples where these rules are applied.
The Incoterms (International Commercial Terms) are crucial for international business transactions, as they regulate the distribution of transportation and customs costs as well as obligations and transfer of risk between buyer and seller. It is important that both parties agree on the Incoterms before the contract is concluded.
The updated Incoterms 2020 have been in force since January 1, 2020.
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