You will need to know who is responsible for all the costs and risks associated with a sales contract between you and your new export market. Knowing the delivery terms incorporated into your worldwide sales contracts will reduce any uncertainties and misunderstandings for both you and the buyers of your products.
To understand the mutual obligations between you and your buyers.
International Commercial Terms: keeping both parties happy
International Commercial Terms (Incoterms) rules were created to prevent any misunderstandings in international sale contracts where goods pass across national borders.
The rules were created and adapted by the International Chamber of Commerce. These define, clearly, the obligations of both sellers and buyers to make global trade easier and reduce the risk of legal complications. They are designed to help trade, not to hinder it.
Incoterms are regularly updated to keep up with developments in international trade. Incoterms 2010 is the latest version of the rules and has been adapted to take into account the:
- Increase in customs free zones
- Increased use of electronic communication in business transactions
- Effort to increase security in the movement of goods
- Changes in transport practices
Delivery terms are put into sales contracts worldwide to make sure both supplier and buyer don’t fall into a costly misunderstanding over who is responsible for the costs and risks in a sales contract.
These costs and risks could apply to:
- Transport freights
- Customs clearance
- Duties payable
Incoterms are three letter trade terms relating to the business terms which are in contracts relating to the sale of goods to export markets.
Clarifying terms for exporters
When you export to a new country or even region, there is a risk of misunderstandings due to countries potentially having different interpretations of the business practices relating to a sale of your goods.
The rules clearly explain a set of three letter trade terms reflecting business practices in contracts of the sale of goods.
The terms describe mainly the tasks, costs, and risks involved for exporters delivering goods to their buyers.
The Incoterms rule is suited to the type of goods sold, the means of transport used, and other obligations of the seller and the buyer which could include insurance or customs clearance.
What Incoterms do (and don’t do)
Firstly, Incoterms do not replace the contract of sale. They only clarify:
- Which party to the sale contract is obliged to arrange for shipment
- When the seller delivers the goods to the buyer
- Which costs each party is responsible for
Incoterms do not deal with the transfer of ownership of goods, or any issues arising from a breach of contract. These are usually dealt with in the contract of sale or in the law governing the contract.
The Incoterms 2010 rules and you
Your obligations and your buyer’s obligations mirror each other. These can be carried out personally or through other parties such as carriers or freight forwarders. The individual obligations of the contractual parties (you and your buyer) are below.
|A||Seller’s Obligations||B||Buyer’s Obligations|
|A1||General obligations||B1||General obligations|
|A2||Licenses, authorisations, security clearances||B2||Licenses, authorisations, security clearances|
|A3||Contracts of carriage and insurance||B3||Contracts of carriage and insurance|
|A5||Transfer of risks||B5||Transfer of risks|
|A6||Allocation of costs||B6||Allocation of costs|
|A7||Notices to the buyer||B7||Notices to the seller|
|A8||Delivery document||B8||Proof of delivery|
|A9||Checking, packaging, marking||B9||Inspection of goods|
|A10||Help with information and related costs||B10||Help with information and related costs|