Incoterms – International Commercial Terms?

What is Incoterms? What is Incoterms - International Commercial Terms? At what time the risks and costs become the responsibility of the buyer and the seller?

Incoterms – International Commercial Terms

Before considering a freight transport abroad, it is important to answer this question: at what time the risks and costs become the responsibility of the buyer and the seller? International Commercial Terms?

In order for international transactions to occur in a clear and transparent manner, there must be a set of standardization rules that everyone can know beforehand. Therefore, in 1936, the International Chamber of Commerce created Incoterms (INternational COmmercial TERMS) in 1936. These international trade terms have as their main objective to clarify the rights, obligations, costs and risks associated with the transportation and delivery of goods.

Incoterms rules are accepted worldwide by governments, legal authorities, exporters and importers as a way of interpreting the most common terms used in the international market. They were created to minimize or eliminate uncertainties that could arise from divergent interpretations of rules in different countries.

Through Incoterms, trade partners define points related to the delivery of merchandise, freight, insurance, packaging, licenses, customs tariffs, handling between terminals, among other issues. When incorporated into the purchase and sale agreements, the terms have legal force.

Since its inception, Incoterms have undergone periodic updates due to the constant improvement of export processes. Its eighth version, called Inconterms 2010, is in effect since the beginning of 2011. The most recent edition decreases from 13 to 11 the number of rules, represented by acronyms of three letters. The Incoterms used to be divided into four categories, but currently they are divided in two, based on the means of transportation of the merchandise.

International Commercial Terms?

1 – Incoterms that apply to any transport:

EXW – Ex Works – The seller is limited to placing the merchandise at the disposal of the buyer in his home, within the established period, not being responsible for the clearance for export nor for the loading of the merchandise in any vehicle collector.

FCA – Free Carrier – Seller completes its obligations and terminates its liability when delivering the goods, cleared for export, to the carrier or to another person indicated by the buyer, in the named place of the country of origin.

CPT – Carriage Paid To – In addition to its obligations and risks foreseen for the term FCA, the seller contracts and pays freight and costs necessary to take the goods to the agreed destination.

CIP – Carriage and Insurance Paid To – In addition to its obligations and risks for the term FCA, the seller contracts and pays freight, costs and insurance related to the transportation of the goods to the combined destination.

DAT – Delivered at Terminal – Seller completes its obligations and terminates its liability when the goods are placed at the disposal of the buyer, on or within the agreed period, at a designated destination terminal (dock, terminal container or warehouse, among others), discharged from the carrier vehicle but not cleared for importation.

DAP – Delivered at Place – Seller completes its obligations and terminates its liability when it places the goods at the disposal of the buyer, on or within the agreed period, at a designated place of destination other than a terminal, ready to be discharged from the carrier vehicle and not cleared for importation.

DDP – Delivered Duty Paid Group – Seller completes its obligations and terminates its liability when the goods are made available to the buyer, on or within the agreed period, at the place of destination designated in the importing country, not discharged from the means of transport. The seller, in addition to the clearance, assumes all risks and costs, including taxes, fees and other charges incurred on importation.

2 – Incoterms that apply to sea and inland waterway transport:

FAS – Free Alongside Ship – The seller terminates his obligations at the moment the goods are placed, cleared for export, along the side of the conveyor ship indicated by the buyer, on the wharf or on vessels used for loading of the goods at the port of shipment appointed by the buyer.

FOB – Free on Board – The seller terminates his obligations and responsibilities when the goods, cleared for export, are delivered, packed, on board the ship at the port of shipment, both indicated by the buyer, on or within the date of the agreed period.

CFR – Cost and Freight – In addition to its obligations and risks for the FOB term, the seller contracts and pays freight and costs necessary to bring the goods to the combined port of destination.

CIF – Cost, Insurance and Freight – In addition to its obligations and risks for FOB, the seller contracts and pays freight, costs and insurance related to the transportation of the goods to the combined port of destination.

What are Incoterms – International Commercial Terms? Remember that it is important for you to record in your trading which Incoterms you are using and the year of Incoterms.

The Intradebook platform for international business contains an infographic that makes it easy to understand Incoterms.

Source: Ministry of Industry and Commerce of Brazil

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