Challenges of Lack of Knowledge of Incoterms
Unfortunately, many practitioners have limited knowledge of Incoterms when choosing delivery terms in their daily business. This can lead to mixing delivery, transport and payment terms, creating double communication and unnecessary conflicts.
Logistical Control and Cost Reduction
Incoterms are important guidelines for both national and international trade, and they describe the responsibilities, risks and costs in a transaction. The choice of Incoterms should be stated on the commercial invoice. Incoterms® 2020 consists of 11 codes, and it is important to understand how they affect logistics to achieve cost reductions and increased control over the value chain.
Implementation and Future Updates of Incoterms
It is not just about choosing Incoterms right or wrong, but also about being aware of the advantages and disadvantages they bring to your business. Incoterms® 2020 was formally implemented on 1 January 2020, and the ICC is expected to present new revised Incoterms in conjunction with its 100th anniversary in 2019.
These are Incoterms important driving rules
EXW
- The seller grants the buyer access to the products at the seller’s own premises (factory or warehouse), completed in accordance with the contract but not cleared for export or loaded onto a vehicle.
- The buyer takes full responsibility for all risks and costs associated with transporting the goods to their final destination.
FCA
- This clause can be applied to all types of transport.
- The seller delivers the goods, cleared for export, into the custody of the first carrier (designated by the buyer) at the specified location.
FAS
- This clause applies exclusively to maritime and inland waterway transport.
- The seller must deliver the goods, cleared for export, alongside the ship at the named port.
- The buyer takes on all risks and costs from this point onward.
FOB
- Used only for sea transport.
- The seller must load the goods onto the ship specified by the buyer.
- The responsibility for the goods transfers to the buyer the moment the goods are onboard the ship.
- The seller must clear the goods for export.
CRF
- Used only for sea transport.
- Essentially the same as CFR, except that the seller is also responsible for insuring the goods for the buyer.
- The insurance covers only the minimum requirements, and if the buyer wishes additional coverage, they must arrange this themselves, as the buyer assumes the risk once the goods are loaded onto the ship.
CIF
- Used only for sea transport.
- Essentially the same as CFR, except that the seller is also responsible for insuring the goods for the buyer.
- The insurance covers only the minimum requirements, and if the buyer wishes additional coverage, they must arrange this themselves, as the buyer assumes the risk once the goods are loaded onto the ship.
CPT
- Similar to CFR, but adapted for modes of transport other than sea.
- The seller pays for the transportation to the specified destination, but the risk for the goods transfers to the buyer the moment the goods are handed over to the first carrier.
- The buyer must arrange insurance for the goods during transit.
CIP
- Similar to CIF, but adapted for modes of transport other than sea.
- The seller pays for the transportation and insurance.
-
The insurance covers only the minimum requirements, and if the buyer wishes additional coverage, they must arrange this themselves.
- The risk transfers to the buyer at the same time as for CPT.
DAP
- This means that the seller delivers when the goods are made available to the buyer and when the transport arrives at the agreed location.
- The seller takes on all risks associated with the transport until the named destination is reached.
DAT
-
This means that the seller delivers when the goods, after being unloaded from the respective transport vehicle, are made available to the buyer at an agreed terminal or address.
- The seller takes on all risks associated with the transport up to and including unloading at the named destination.
DDP
- This means that the seller covers all transportation costs and takes on all risks until the goods are delivered, in addition to paying any customs duties (import and export).
