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INCOTERMS
INternational COmmercial TERMS = Incoterms
a) Role of Incoterms
Incoterms are rules that define the conditions under which goods are sold and delivered in international commercial transactions. Consequently, they define the responsibilities, rights and duties of the seller and buyer in terms of packaging, customers, transport and, notably, the transfer of expenses, risks and document requirements.
In practice, the Incoterm is an indispensable element in the purchase contract, even though no law requires the inclusion of an Incoterm in international sales.
b) How to choose your Incoterm
The choice of Incoterm is an integral part of business negotiations. It should be made according to the company's organisational capacity, the means of transport used and the level of service you wish to offer your customer or that you wish to receive from your supplier. Incoterms may also be selected in accordance with industry practices, competitors' practices, etc.
There are 13 Incoterms divided into three categories:
Category 1 – On departure sales, primary transport not paid
EXW: all modes of transportation
- Minimal obligations for the exporter
The buyer is responsible for customs formalities; the seller is responsible for packaging.
FCA: all modes of transportation
- The exporter chooses the place of delivery and handles export customs clearance
- Costs limited to export clearance fees and delivery to the first carrier, named by the buyer
- Packaging is the seller's responsibility.
FAS: sea transport only
- Cross-docking fees to use in the case of roll-on/roll-off. The seller is deemed to have delivered the goods once they have been placed alongside the ship at the named port.
FOB: sea transport only
- Extreme simplicity: All expenses in the exporter's country are its responsibility; all other expenses are paid by the buyer. In addition to the Incoterm, the Liner Term must also be specified* (*FOB under tackle Anvers, FOB stowed Anvers, etc.)
Category 2 – On departure sales, primary carriage paid:
CFR and CIF: sea transport only
- Risk is transferred once the goods have crossed the ship's rail
- The transfer of expenses takes place at the port of destination, but the transfer of risk occurs once goods are loaded at the port of shipment.
CPT and CIP: all modes of transportation
- Risk is transferred as soon as the carrier takes possession of the goods
- Ideal in the case of payment by documentary credit
- CPT and CIF are recommended for air, roll-on/roll-off and containerised carriage.
DAF: all modes of transportation
- Obsolete Incoterm for exchanges within the EU because of the elimination of customs points at borders
- The cost of handling and storing goods at the border are not defined by the Incoterm.
Category 3 – On arrival sales
DES: sea transport only
- No ambiguity about the transfer of risk or the assignment of expenses at destination
- Risk is transferred at the named port.
Tip: To prevent misunderstandings over insurance and liability, DES is preferable to CIF.
DEQ: sea transport only
- Delivery consists of unloading the goods off the ship to the quay at the port of destination.
Tip: If the seller agrees to take on the risk and cost of handling the goods from the quay to another location, it is preferable to use DDU.
DDU: all modes of transportation
- True value-added arrangement with maximum service offered by the seller to the buyer: the buyer is freed of all logistical concerns and the seller takes on all costs and risks to the site named by the customer.
Tip: Perfect in the case of delivery to a container terminal or to the recipient's factory.
DDP: all modes of transportation
- The import license must be requested by the seller, which can be complex
- It is complicated for the seller to recover VAT.
Tip: Only use DDP for the shipment of samples because of the risk of problems with customs clearance.
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