Definition and Responsibilities of Incoterms

Definition Of Incoterms

• Incoterms (International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce (ICC).
• They define the responsibilities of buyers and sellers in international shipments, specifying who is responsible for shipping, insurance, duties, and risks.
• The latest version, Incoterms 2020, came into effect on January 1, 2020.

Responsibilities Of Buyers And Sellers

• Sellers' Responsibilities:

  • Deliver goods as per the agreed Incoterm.
  • Obtain and pay for export licenses and clearance.
  • Arrange for transportation to the agreed location.
  • Provide necessary documentation (e.g., invoices, shipping documents).

• Buyers' Responsibilities:

  • Pay for goods and transportation as per the contract.
  • Obtain and pay for import licenses and clearance.
  • Handle insurance and risk once the goods are delivered as per the Incoterm.

Categories Of Incoterms

• Group 1: Rules for Any Mode of Transport

  1. EXW (Ex Works) - Seller makes goods available at their premises; buyer takes all responsibility.
  2. FCA (Free Carrier) - Seller delivers to a named place; risks transfer to buyer upon delivery.
  3. CPT (Carriage Paid To) - Seller pays for transport to destination; risk transfers upon delivery to carrier.
  4. CIP (Carriage and Insurance Paid To) - Similar to CPT but includes insurance paid by the seller.
  5. DAP (Delivered at Place) - Seller delivers to a specified destination; risk transfers upon delivery.
  6. DPU (Delivered at Place Unloaded) - Seller delivers and unloads at destination; risk transfers after unloading.
  7. DDP (Delivered Duty Paid) - Seller is responsible for all costs, including duties, until goods are delivered.

• Group 2: Rules for Sea and Inland Waterway Transport

  1. FAS (Free Alongside Ship) - Seller delivers goods alongside the ship; risk transfers at that point.
  2. FOB (Free On Board) - Seller delivers goods on board the vessel; risk transfers once on board.
  3. CFR (Cost and Freight) - Seller pays for transport to the port; risk transfers on board the vessel.
  4. CIF (Cost, Insurance and Freight) - Similar to CFR but includes insurance paid by the seller.

Impact On International Trade

• Provides clarity and reduces disputes between trading partners by clearly defining roles and responsibilities.
• Essential for compliance and risk management in global trade, enhancing transparency.
• Helps streamline logistics and shipping processes, leading to improved efficiency in international transactions.
• Facilitates smoother cross-border trade by aligning practices and expectations across different countries.

Definition Of Incoterms

• Incoterms stand for International Commercial Terms and are published by the International Chamber of Commerce (ICC).
• These terms clarify the obligations of buyers and sellers in international trade, detailing responsibilities for shipping, insurance, duties, and risks.
• The current version, Incoterms 2020, was implemented on January 1, 2020.

Responsibilities Of Buyers And Sellers

• Sellers' Responsibilities:
  • Must deliver goods in accordance with the chosen Incoterm.
  • Responsible for obtaining and covering costs for export licenses and clearances.
  • Required to arrange transportation to the agreed-upon location.
  • Needed to provide essential documentation, including invoices and shipping papers.
• Buyers' Responsibilities:
  • Obligated to pay for the goods and transportation as per the contractual agreement.
  • Must obtain and finance import licenses and clearances.
  • Assume responsibility for insurance and risk once goods are delivered as per the selected Incoterm.

Categories Of Incoterms

• Group 1: Rules for Any Mode of Transport

  • EXW (Ex Works): Seller makes goods available at their premises; buyer bears all subsequent responsibility.
  • FCA (Free Carrier): Seller delivers goods to a specified location; risk transfers to the buyer upon delivery.
  • CPT (Carriage Paid To): Seller covers transport costs to the destination; risk shifts to the buyer when delivered to the carrier.
  • CIP (Carriage and Insurance Paid To): Similar to CPT, but the seller also pays for insurance.
  • DAP (Delivered at Place): Seller delivers to a designated location; risk transfers at this point.
  • DPU (Delivered at Place Unloaded): Seller delivers and unloads at the destination; buyer assumes risk after unloading.
  • DDP (Delivered Duty Paid): Seller assumes all responsibilities and costs, including duties, until delivery.

• Group 2: Rules for Sea and Inland Waterway Transport

  • FAS (Free Alongside Ship): Seller delivers goods next to the ship; risk transfers to the buyer at this stage.
  • FOB (Free On Board): Seller delivers goods onto the vessel; risk transfers once placed on board.
  • CFR (Cost and Freight): Seller pays transport to the port; risk passes when goods are on the vessel.
  • CIF (Cost, Insurance and Freight): Similar to CFR, but includes insurance provided by the seller.

Impact On International Trade

• Enhances clarity and reduces disputes by explicitly defining buyer and seller roles.
• Crucial for compliance and risk management in global trade, improving overall transparency.
• Streamlines logistics and shipping operations, resulting in greater efficiency in international transactions.
• Facilitates smoother cross-border trading by standardizing practices and expectations among countries.

This quiz covers the essential concepts of Incoterms, including their definition and the responsibilities of buyers and sellers in international trade. It will also touch on the categories of Incoterms and their implications on shipping and risk management. Test your understanding of these crucial trade terms.