Moving goods from one location to another has become an increasingly complex task throughout the history of human civilization as new modes of transportation arose alongside the creation of borders and trade regulations. Operating on a global scale as an international shipper of goods is no easy task. In an effort to standardize the creation of trade contracts, the International Chamber of Commerce (ICC) created what is known today as the Incoterms® rules.
What are Incoterms?
An abbreviation of “International Commercial Terms,” the Incoterms provide a list of standard terms that can be incorporated into trade contracts as an easy way of defining the specific expectations, obligations, and liabilities of both parties (buyer and seller) in a trade agreement. Each Incoterm explicitly defines who is responsible for what at each stage of the trading process.
Why Do Shippers Need to Know about Incoterms?
Shippers should be familiar with Incoterms because they provide a shared understanding of exactly what both parties can expect, and they are commonly used as part of a legal shipping agreement contract. An important consideration to be made is that the specific rules and expectations of each Incoterm can change depending on the version of Incoterms that is used in the contract.
After January1, 2020, the default Incoterms version will be Incoterms® 2020. However, contracts can specify which version of Incoterms they wish to use (if any) and whatever version is explicitly stated is the version that will decide the specifics for that contract. If no date is added, then any contract that exists prior to the start of 2020 will default to Incoterms® 2010 specifications.
What are the Incoterms?
The complete Incoterms list is comprised of 11 terms, 7 of which apply to all modes of transport:
● EXW - Ex Works
● FCA - Free Carrier
● CPT - Carriage Paid To
● CIP - Carriage and Insurance Paid To
● DAT - Delivered at Terminal (Replaced by DPU - Delivered at Place Unloaded in Incoterms 2020)
● DAP - Delivered at Place
● DDP - Delivered Duty Paid
The remaining 4 Incoterms only apply to transport by way of sea or inland waterways:
● FAS - Free Alongside Ship
● FOB - Free On Board
● CFR - Cost and Freight
● CIF - Cost, Insurance, and Freight
Understanding the Incoterms will help you better negotiate trade contracts with buyers and sellers. Each Incoterm defines which stage the responsibility for the freight is shifted from the seller to the buyer. Contact us today to learn more or click here to obtain a copy of the Incoterms® 2020 overview.