What is Incoterms?

As an international shipping specialist at Barman Tarabar, Incoterms are a set of rules and conditions used to determine the responsibilities and obligations between the seller and the buyer in international sales contracts. These definitions are published by International Trade and outline the details of the transfer of goods, costs, bill of lading, insurance and responsibilities. Incoterms is composed of three words of International Commercial Terms

What is the use of Incoterms?

They have important applications in international transportation. Below we examine some of the uses of Incoterms:

Determination of Responsibilities:

Incoterms clearly define the responsibilities of the seller and the buyer in international transport contracts. These conditions include delivery of goods, loading and unloading, insurance, responsibility for losses and damages and costs related to transportation.

 

Predictability of costs:

using Incoterms, costs related to transportation between the seller and the buyer are defined clearly and predictably. This helps the parties to the contract to manage their costs and, as a result, have more accurate financial planning.

 

Description of the conditions for the transfer of goods:

Incoterms determine the exact conditions for the transfer of goods from the seller to the buyer. These terms include the point of delivery, responsibility for loading and unloading, responsibility for shipping and insurance costs, and other transfer details.

 

Reduction of risks and ambiguities:

By using Incoterms, the risks and ambiguities related to international transport are minimized. These terms provide detailed explanations about the responsibilities and obligations of the parties to the contract.

 

Facilitating commercial negotiations:

The use of Incoterms in international transport contracts can facilitate commercial negotiations. Having a clear definition and conditions for the transportation of goods, the parties are able to discuss and agree on the details of the contract quickly and in the best possible way.

 

International usability:

Incoterms are accepted and used by most countries and international organizations according to international standards. This allows contracting parties to use these terms in their contracts with customers or other international traders easily and with common rules.

 

Increasing trust:

By using Incoterms, the terms of transportation and the responsibilities of the parties are determined legally and clearly. This increases the trust of the parties in each other, because each party can accurately predict and fulfill their obligations and responsibilities in connection with the transportation of goods.

 

Facilitating the resolution of disputes:

If disputes or ambiguities arise in international transport contracts, the use of Incoterms can be used as a legal and standard reference in resolving these disputes.

In general, by having a precise definition of the responsibilities and conditions of transportation, the use of Incoterms in international transportation contracts can lead to the improvement of productivity and efficiency in the supply chain and international transportation. These terms allow the parties to choose the best methods of transportation, loading, unloading and responsibility for related costs.

 

Use in international contracts:

Incoterms are used in international transport contracts due to their international acceptance and recognition. These terms make contracts comprehensible and enforceable around the world and reduce legal problems and disparities in understanding.

 

Reducing financial risks:

By specifying the terms of delivery, loading, unloading and costs, Incoterms allow the parties to reduce the risks of payment delays and financial dissatisfaction. Because the rules and terms of the contract clearly define payments and responsibilities.

 

Standardization:

The use of Incoterms causes standardization and integration in international transport contracts. These standards help the parties to be easily compatible with other contracts around the world.

 

Guidance on choosing the shipping method:

According to the Incoterms used in the contract, the parties can choose the best shipping method for their goods. Based on the determined conditions and responsibilities, the capabilities and limitations of each transportation method are examined.

 

Reduction of international ambiguities:

By using Incoterms, ambiguities and requirements related to international transportation are reduced. By referring to these standards, the parties agree on common rules and conditions for conducting transactions, and unnecessary disputes and requirements are avoided.

 

Facilitating the movement of goods:

By using Incoterms, the movement of goods from one point to another is facilitated at the international level. The parties will be able to coordinate the loading, unloading, packaging, insurance and other transportation details using these standards.

 

Facilitation in customs affairs:

the use of Incoterms can facilitate customs affairs and clearance at the destination. By having a clear definition and conditions in the contract, the parties can easily provide the documents and information needed for the customs.

 

Incoterms consisting of 4 groups D-C-F-E

Ex Works Group – (E) Delivery of goods at the origin:

Delivery of goods at the origin (factory). In this method, the seller delivers the goods to the buyer at the warehouse or warehouse, and all costs, including loading, transportation, insurance, customs, and responsibility for the damage of the goods, are the responsibility of the buyer.

  Group F – delivery of goods to the buyer without payment of freight at the origin:

This group includes the terms by which the seller delivers the goods to the place designated by the buyer. The most important methods in this group are:

• FCA: Free Carrier

Delivery of goods to the carrier at the origin (delivery of goods in trucks, rails and airplanes). Considering that the place of delivery is the buyer’s country, the loading is with the buyer and is the point of responsibility. The cost of shipping and insurance is with the buyer. Signing a transport and insurance contract with the buyer (not necessarily).

• FAS: Free Alongside Ship

Delivery of goods next to the ship at the origin. Completion of the seller’s responsibility at the ship’s port is on the quayside. The cost of shipping and insurance is with the buyer. Signing a contract of transportation, insurance and inspection with the buyer.

• FOB: Free on Board

Delivery of goods on the ship’s deck at the origin. The seller has terminated his responsibility when the goods have passed over the ship’s deck. The cost of shipping and insurance is with the buyer. The contract of carriage from the port of delivery and insurance and inspection is concluded with the buyer.

Group C – delivery of goods at the origin to the buyer with payment of freight:

This group includes terms by which the seller must pay the fare to the destination, but the risk of loss or damage and additional costs are borne by the buyer. In this method, a kind of division of responsibility has been applied between the buyer and the seller.

• CFR: Cost and Freight

This method is the same as the former c&f, with the difference that it is transported by sea. The seller’s responsibility ends when the goods are loaded on the ship’s deck. The cost of insurance is with the buyer. The shipping cost is with the seller. An insurance contract is concluded with the buyer. and sign a shipping contract with the seller.

• CIF: Cost, Insurance and Freight

The cost, insurance and freight to the destination are with the seller. It is for sea transportation. The seller’s responsibility ends when the goods are loaded on the ship’s deck. The cost of transportation and insurance is with the seller, and the seller is obliged to deliver the goods to the designated port of destination.

• CPT: Carriage Paid To

The cost of transporting the goods according to the designated destination is entirely the responsibility of the seller. Composite transportation method is mostly used for land or air transportation. The seller’s responsibility ends when the goods are delivered to the first carrier. Shipping cost with the seller to the specified point according to the contract. The cost of insurance as well as the conclusion of an inspection contract is with the buyer.

• CIP: Carriage and Insurance Paid to

Delivery by payment of freight and insurance to the destination is the responsibility of the seller. The shipping method is composite. The seller’s responsibility ends when he delivers the goods to the agreed point. The cost of insurance and shipping is with the seller. The contract of insurance and transportation is concluded with the seller. An inspection contract is concluded with the buyer.

Group D – Delivery of goods at the destination:

It includes terms whereby the seller is responsible for delivering the goods to the agreed point or location at the destination and the seller assumes all risks and costs.

• DAF: Delivered At Frontier

Delivery at the border (designated border). Mainly, transportation is done by railway, and in this type of transportation, a nationwide document can be obtained from the railway, which includes all transportation operations until the final destination and insures the goods for that period of time.

• DES: Delivered Ex Ship

Delivery on board ship (at destination). The seller delivers the goods to the buyer on the ship’s deck at the destination port, and the buyer is responsible for the procedures and costs of goods clearance to enter the destination port.

• DEQ: Delivered Ex Quay

Delivery at the pier (at destination). When the seller has transferred the goods from the ship to the wharf and paid the transfer fees to the destination wharf, the seller will deliver the goods to the buyer at the destination port.

• DDU: Delivered Duty Unpaid

Delivery at destination without payment of duties and customs duties. The seller delivers the goods in the destination country without clearing the goods for entry and payment of duties.

• DDP: Delivered Duty Paid

Delivery at the destination with payment of duties and customs duties. The seller delivers the goods to the buyer in the destination country after clearing the goods and paying the duties.