What is Incoterms?
What do we mean when we hear Incoterms? These are specially developed, supranational rules created by the International Chamber of Commerce, whose headquarters are in Paris. It is important to note that the rules drawn up under the Incoterms have no official legal form and their use is voluntary. However, their nature and universality make them used all over the world, and their rules are used when trading material goods. The rules are quite clear - there are general conditions to be accepted during sales, including the very important obligation of sharing in international exchange. There are also norms relating to the allocation of transport costs and insurance, responsibility import, and export, as well as transport regulations. The latest interpretation of the Incoterms standards is from 2020. These voluntary rules make it easier to conduct international trade and set clear rules during a sales transaction. It is worth learning about the conditions that need to be met under Incoterms.
What are the Incoterms formulas?
How do they work and why were Incoterms formulas invented? It is another international initiative to bring international trade closer together and to standardize a certain pattern of behavior. Incoterms declarations are voluntary, but nevertheless have gained great popularity in the world and a large part of entrepreneurs apply the established rules. Standardization of good practices in the trade of material goods has a positive impact on both sides and also increases trust between entrepreneurs from different regions of the world. Within the Incoterms, there are 11 rules that define the obligations and responsibilities of both parties during a purchase transaction. Incoterms is another step towards responsible international trade.
Are the Incoterms formulas regulated by law? No, it is a voluntary set of rules developed by specialists from the International Chamber of Commerce. It is an organization that seeks to outline a certain framework in international trade and commerce and, in addition, to promote sound business practices. Developed by the international chamber, the principles of good behavior between both parties are meant to work out a compromise that is profitable for both parties. They cannot be a piece of legislation because the organization does not have the capacity to do so, and various local legislation also stands in the way. However, the voluntary acceptance of sound rules should engender greater trust between the parties, and encourage further commercial cooperation.
How do the rules in Incoterms work?
What do the rules under Incoterms look like? They are divided into two groups. The first group comprises common type rules:
- Ex Works - the buyer delivers the goods at the buyer's disposal and it does not have to be the seller's premises.
- Free Carrier - the seller delivers the goods in two ways. On the seller's premises they are loaded on the buyer's means of transport, outside the seller's premises he delivers and unloads them for the buyer.
- Carriage Paid To - the seller delivers the goods for the buyer and transfers the risk of delivery to the buyer.
- Carriage and Insurance Paid To - the seller delivers the goods and transfers the risk to the buyer and the carrier ordered by the buyer.
- Delivered at Place - the seller transfers the risk to the buyer when the goods are ready for unloading at a place nominated by the buyer.
- Delivered at Place Unloaded - this is similar to Delivered at Place, but in addition, the seller is required to unload the cargo.
- Delivered Duty Paid - the seller delivers the goods to the buyer and leaves them at the buyer's disposal at the time of clearance and duty.
Do the Incoterms rules also apply to sea and inland waterway transportation? Of course, they are:
- Free Alongside Ship - the seller delivers the cargo to the buyer and the goods are placed along the side of the ship.
- Free On Board - the seller delivers the cargo to the buyer and this takes place onboard a ship standing in a port that has been designated by the buyer.
- Cost and Freight - this rule also obliges the seller to deliver the goods to the ship. However, he is not required to insure the goods. This must be done by the buyer.
- Cost Insurance and Freight - this is the reverse of the Cost and Freight rule. In its case, the seller not only delivers the goods on board the vessel but is also required to purchase insurance against the risk of loss or damage. The insurance must also work at the port of destination.
What changes have occurred within the Incoterms formula?
Are there changes in the Incoterms rules? Yes, the International Chamber of Commerce is constantly updating them and adapting them to international trade trends. The latest changes come from 2020 - the name of the DAT rule was changed to DPU. It results from the misleading nomenclature of Delivered at Terminal, which implied that the terminal was the exclusive location for delivering goods. The Chamber of Commerce also decided to expand on the FCA rules. If the buyer needs a certificate that the goods have been loaded for the road, then the seller should provide that type of document.