Incoterms (International Terms of Commerce)
Incoterms were first published by the International Chamber of Commerce in 1963, in order to establish a set of international rules for the interpretation of some of the most used terms in foreign trade.
WHAT ARE THEY FOR?
Incoterms (International Terms of Commerce) only treat the relationship between sellers and buyers under a sales contract and, moreover, only do this in a few different aspects, such as identifying the division of costs of the operation, that is, who is responsible for payment of the international freight, transport insurance, costs of clearance, etc., the site of delivery, the moment when the transfer of responsibility for the cargo happens, the documents that need to be presented by the seller as proof that he fulfilled the responsibilities agreed upon.
The Incoterms only regulate the relationship between buyer and seller, and it is recommended that they are to be used as a contractual clause of the purchase and sale agreement. The regulation does not aim to regulate the relations between the importer/exporter and the other organizations that are part of the operation such as banks, transport and insurance companies, etc., although the choice of the Incoterm does influence on certain aspects of the relationship between these agents and the buyer/seller such as the choice of the type of transportation or whether there will be participation of an insurance company.
HOW MANY THERE ARE?
There are eleven terms currently approved by the International Chamber of Commerce (ICC), as in the publication 715 - INCOTERMS 2010. The Incoterms 2010 revision was published in September of 2010 and has been effective since 01/Jan/2011. Of the five terms of group D from Incoterms 2000, four were taken and two were added. The deleted terms were DAF, DES, DEQ and DDU and the ones added were DAT (Delivered at Terminal) and DAP (Delivered at Place).
The ICC (International Chamber of Commerce) stipulated the terms FAS, FOB, CFR, CIF, for when the cargo is being transported by sea, river or lake, the and the remaining ones, EXW, FCA, CPT, CIP, DAP, DAT and DDP, are intended for all modes of transport, including multimodal.
The Incoterms sorted in ascending order of the seller / exporter responsibility follow bellow:
EXW (Ex Works):
The products are made available to the buyer in a designated location such as the factory or the exporter´s warehouse, on the agreed date; all expenses and risks rests with the buyer, from the designated location to final destination; this modality is the one where obligations and liabilities are minimal to the seller.
FCA (Free Carrier):
The obligation of the exporter ends when the goods are delivered, cleared for export, into the custody of the carrier named by the buyer at the designated location; customs clearance is a responsibility of the seller.
FAS (Free Alongside Ship):
The seller's obligation is to put the goods alongside of the ship at the pier of the named port of shipment or transshipment vessels. The clearance of goods also is a responsibility of the seller.
FOB (Free on Board):
It is the exporter´s responsibility to place the goods on board of the ship indicated by the buyer at the named port and to meet the export formalities;
Some of the exporter responsibilities are the costs necessary for placing the goods on board the ship, the preparation and packaging of the products, obtaining the documents necessary for shipment, transportation and insurance costs from the factory to the place of shipment, along with port costs such as storage, shipping rates and the clearance of goods;
It is up to the importer the international freight, insurance and any other expenses from the point the container is placed on the ship onward, including the providences regarding the clearance at the port of landing.
CFR (Cost and Freight):
The exporter has all the responsibilities already defined in the Incoterm FOB, along with the payment of international freight.
The importer is responsible for the international insurance and the clearance of the goods at the port of landing.
CIF (Cost, Insurance and Freight):
All the expenses, including insurance and freight, up to the arrival of the goods to the designated port of destination are paid by the exporter;
From the moment that the cargo transposes the ship's rail at the destination port the cargo is the importer's responsibility, which has to bear all expenses from then onwards, such as landing taxes, customs duties.
CPT – (Carriage Paid To):
The exporter pays for the freight cost to the place of destination indicated;
The importer bears the risk for any eventual damage from the time the carrier takes custody of the goods.
This term may be used in all modes of transport, including multimodal.
CIP (Carriage and Insurance Paid to):
The exporter´s responsibilities are the same as indicated in the CPT, plus the payment of insurance to the destination;
The risks of any eventual damage are transferred to the importer at the time the carrier takes custody of the goods.
This term may be used in all modes of transport, including multimodal.
DAP (Delivered at place):
It is up to the exporter to deliver the goods, along with all the proper exporting procedures, at the designated location in the importing country.
All the procedures regarding the importation in the destination country, including all risks and costs such as duties, taxes and other charges, are a responsibility of the importer.
DAT (Delivered at Terminal):
It is up to the exporter the unloading of the cargo at the named port terminal in the destination country, but he is not responsible for the procedures required for the nationalization of the products in the importer´s country.
The importer assumes all costs, including duties, taxes and other charges.
DDP (Delivered Duty Paid):
The exporter makes the goods available in the country of the importer on the predetermined site, cleared for import, but without the obligation to unload them from the ship;
The importer bears the risks and costs related to taxes and other charges related to the delivery of the goods;
This Incoterm is the one where the exporter has the largest amount of responsibilities, as opposed to EXW.
The responsibilities that are not clearly specified in the Incoterm used in the negotiation should be examined preliminarily and an understanding between stakeholders must be reached before the operation begins.
