In international sales operations, conflicts can arise if rules governing the transportation of goods from origin to destination are not established. To avoid discrepancies, the International Chamber of Commerce established a code protocol in 1936 that has since governed foreign trade contracts. The choice of Incoterms affects the contract cost.
Incoterms determine:
• The scope of the price. • When and where the transfer of risk from the seller to the buyer occurs. • The place of delivery of the goods. • Who arranges and pays for transportation. • Who arranges and pays for insurance. • Which documents each party processes and their cost.
These are the most prominent:
Responsibility for delivery by the seller
For a given term, “Yes” indicates that the seller is responsible for providing the service included in the price; “No” indicates that it is the buyer’s responsibility. If insurance is not included in the terms (for example, CFR), then insurance for transportation is the buyer’s responsibility.
In short, Incoterms are widely known and used rules by the various actors involved in foreign trade operations (exporters, importers, carriers, freight forwarders, customs agents, banks, and insurance companies, etc.). Therefore, they must be thoroughly understood to be used correctly and to avoid discrepancies between the parties.
