In international sales operations, conflicts may arise if rules have not been established that will mark the transport of the merchandise from origin to destination.
To avoid setbacks, the International Chamber of Commerce established in 1936 a protocol of codes that, since then, has governed contracts in foreign trade.
Incoterms are also called price clauses, since each term allows the elements that compose it to be determined.
The selection of the Incoterms influences the cost of the contract.
Incoterms determine:
These are the most prominent:
Ex Works → Ex works. Indicated when the sale takes place on departure, in its own warehouses, with the merchandise verified and packed according to the buyer's instructions. The exporter must provide only the commercial invoice. It affects all types of transport (land, rail, sea or air).
Free Carrier → Sniper Carrier. Sale at departure and for all types of transport. In this case, the exporter delivers the merchandise to the carrier indicated by the buyer and prepares customs procedures. As documents, the seller delivers the commercial invoice, the document that accredits the delivery to the carrier and the DUA (unique administrative document for EU customs).
Free Alongside Ship → Franco alongside the ship. Maritime transport, sale on departure. The exporter provides the commercial invoice, the document certifying the delivery of the merchandise and the DUA.
Free On Board → Free on board. As in the case of the FAS, this code is used for maritime transport in the sale on departure, but in this case, the merchandise is delivered suspended to the side of the ship (on board the ship).
Cost and Freight → Cost and freight. Maritime transport and sale on departure: the seller processes the export, delivers the merchandise, contracts and pays the freight to the port of destination and pays the unloading costs.
Cost, Insurance and Freight → Cost, insurance and freight. For maritime transport and sale on departure, the seller processes the export, delivers the merchandise on board the ship, pays the freight and unloads it to the destination port, as well as the insurance policy that covers, at least, the 110% of the amount set in the purchase transaction.
Delivered At Place → Delivered at a point (named place of destination) '. The DAP Incoterm is used for all types of transport. It is one of the two new 2010 Incoterms with DAT. Replaces the DAF, DDU and DES Incoterms. The seller is responsible for all costs, including the main transport and insurance (which is not mandatory) but not the costs associated with importation, until the goods are made available to the buyer in a vehicle ready to be unloaded. . It also assumes the risks so far.
Delivered Duty Paid → Delivered duty paid (named place of destination) '. The seller pays all the expenses until the merchandise is left at the agreed point in the destination country. The buyer does not perform any process. Import customs charges are borne by the seller. The type of transport is multipurpose / multimodal.
-Responsibility for delivery by the seller
For a given term, "Yes" indicates that the seller has the responsibility to provide the service included in the price; "No" indicates that it is the responsibility of the buyer. If insurance is not included in the terms (eg CFR) then transportation insurance is the responsibility of the buyer.
In short, Incoterms are widely known and used by the different actors involved in foreign trade operations (exporters, importers, carriers, freight forwarders, customs agents, banks and insurance companies, etc.) and therefore must be known in depth, to be used correctly and thereby avoid discrepancies between the parties.
