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Incoterms 2020

Incoterms

Incoterms consist of set of rules that define the responsibilities of exporters and importers for the delivery of commodities under sales contracts. Incoterms are published by the International Chamber of Commerce (ICC) and are used for commercial and trade transactions.

Traders worldwide make use of standard trade definitions (called Incoterms) to categorise certain things such as who’s responsible for the shipping, insurance, and tariffs on particular products; they’re commonly used in global trade and international contracts and are protected by International Chamber of Commerce copyright. Inco terms specifically help to reduce misunderstandings among traders that results in minimizing trade disputes and litigation. As a trader you must familiarize yourself with these Incoterms so you can choose relevant terms which enable you to provide excellent customer service and spell out who will be responsible for which charges.

What are the current Incoterms?

In year 2010, the two main categories of Incoterms were updated and were organized by transport modes. These were supposed to be used in international and domestic contracts for the first time, the new groups precisely aimed to simplify the drafting of contracts along with the clear specification of obligations of importers and exporters:

Group 1 : these Incoterms apply over the mode of transport

  • EXW : Ex Works
  • FCA : Free Carrier
  • CPT : Carriage Paid To
  • CIP : Carriage and Insurance Paid To
  • DAT : Delivered at Terminal
  • DAP : Delivered at Place
  • DDP : Delivered Duty Paid

Group 2 :These Incoterms apply only on sea and inland waterway transport

  • FAS : Free Alongside Ship
  • FOB : Free on Board
  • CFR : Cost and Freight
  • CIF : Cost, Insurance, and Freight

E Commerce Incoterms

Most of the B2B ecommerce agreements make use of EXW, CPT, or CIF; most of the business-to-consumer (B2C) transactions make use of CPT or CIF (and sometimes DDP). Excluding for DDP, all other mentioned Incoterms require the importer to pay all related tariffs and taxes upon arrival. To make sense and know how these Incoterms actually relate with your trade business, you should take the time to understand their usage.

Incoterms considerations

  • When the commodities being exported arrive at their destination, the buyer’s country or we can say the importing country requires that all related tariffs (import taxes levied by the destination country) and local taxes, including value-added tax (VAT), to be paid. Many companies require the importer to pay such tariffs and taxes.
  • Importers generally want to know the final price, including shipping and taxes (known as the “landed cost”), before agreeing to buy, but as an exporter it may happen that you are not able to provide buyer with such accurate landed costs as tariffs and taxes widely vary throughout the world. Thus determining these rates specifically before shipping can be difficult. So, it is suggested for being clear about your policy on tariffs- particularly about who will pay and when payment will be due.
  • The shipping companies selected by you can act as freight forwarders, to help you in completing the shipping documents, helping you in determining duties and taxes, and pre-paying them for you, and then finally invoicing you.

Background on Incoterm 2010 Update

Why the Incoterms 2000 were revised?

Incoterms 2010 can be seen as the updated version of Incoterms 2000. Incoterms 2010 were developed because of a considerable review of current shipping practices as well as trends and to cope up with the rapid expansion of international trade. The key drivers for the Incoterms 2010 include: a need for enhanced cargo security, changes in the Uniform Commercial Code in 2004 which resulted in a deletion of a few shipment and delivery terms, and resulted in addition of new trends for global transportation.

Can you still use the Incoterms 2000?

As per the International Chamber of Commerce, all contracts which were made under Incoterms 2000 will remain valid even after 2011. Adding on, ICC recommends using Incoterms 2010 from January 2011 onwards, parties involved in trade contracts can agree to use any version of Incoterms after 2011 which they find much relevant for them. However, it is necessary to specify clearly the chosen version of Incoterms (i.e. Incoterms 2010, Incoterms 2000, or any earlier version).