Incoterms - Explained
What are Incoterms?
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Table of ContentsWhat are Incoterms?Incoterm Rules for Any Mode of TransportationAcademic Research on Incoterms
What are Incoterms?
Incoterms are commercial terms published by the ICC (International Chamber of Commerce) that are used in domestic and international shipping agreements. They are consistent with International Commercial Law (ICL). They cover all the important terms, including obligations, prices, risks, payables, delivery, credit terms, etc.
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Incoterm Rules for Any Mode of Transportation
The ICC abbreviates all incoterms and they have international recognition.There are certain incoterm rules that are used in the transportation of goods:
- Delivered at Terminal (DAT) - This term obligates the seller to safely deliver the goods to a destination terminal. The seller covers the the costs of transportation. The buyer pays for customs clearance and taxes at destination.
- Delivered Duty Paid (DDP) - This term obligates the buyer to deliver goods to the designated place agreed between the buyer and the seller. The seller pays all taxes and duties during this process. The buyer pays the costs of unloading.
- Ex Works (EXW) - This incoterm specifies the seller's responsibiliy to ensure that the availability of goods at a designated location. The Buyer covers the cost of transportation and assumes the risk of loss.
- Free on board (FOB) - This incoterm specifies that the seller or the buyer is responsible to deliver the goods in a specified container. Any risk and transportation charges will be borne by the buyer or the seller according to the agreed terms and conditions. FOB "shipping place or its destination place" means that the seller is responsible for transportation of the goods to the port of shipment and the cost of loading. The buyer seller is responsible for the costs of ocean freight, insurance, unloading, and transportation from the arrival port to the final destination. The seller passes the risk to the buyer when the goods are loaded at the originating port.
- Cost Insurance and Freight (CIF) - The seller must deliver the shipped goods, ready and cleared for export, to the port of shipment. The seller pays for loading, transportation to the destination, and insurance coverage. Risk of loss is transferred to the buyer once the goods are loaded. The buyer assumes costs when the freight arrives at the port of destination.
When incoterms are incorporated into an agreement, the contract must mention the particular version ( e.g. Incoterms 2012).
Academic Research on Incoterms
- ICC Guide to Incoterms 2000, Ramberg, J. (1999). This paper is a standardized and complete guide of Incoterms 2000 complying ICC rules.
- To What Extend Do Incoterms 2000 Vary Articles 67 (2), 68 and 69, Ramberg, J. (2005). JL & Com., 25, 219. The study addresses the level of variations in different articles of Incoterms 2000 in the context of section 67 to 69.
- INCOTERMS 2010, Ramberg, J. (2011). Eur. JL Reform, 13, 380. The author elaborates the reforms of 2010 Incoterms to use for Trading Contract.
- Incoterms 2010: The newest revision of delivery terms, Bergami, R. (2012). Acta Universitatis Bohemiae Meridionales, 15(2), 33-40. This paper states Incoterms 2010 and presents a revised and novel perspective on the delivery of goods to trading parties. This researcher has performed a detailed comparison between the changes of incoterms 2000 and incoterms 2010. The comparative analysis of incoterms 2000 and 2010 has the context of risk management to save the traders from any business risks that traders might face while they are using these terms. For instance, the complexity of terms remains unresolved, especially; in the context of the FOB term. Instead of FOB, DAT (Delivered at Terminal) and DAP (Delivered at Place) are more appropriate terms that can help to understand the cross border transactions such as European Union Trade Ports or European Union business Blocks. The 2010 Incoterms provide better, easy and improved definitions of executing business in a better way with productive results. 2010 Incoterms highlight the benefits of using new terms. It also highlights the context of old terms as old terms are outdated and do not elaborate on the recent trading mechanism. However, there is a reluctant attitude by businessmen doing business in old fashion as they cling to old terms and methods of doing business. Such an attitude and the working mechanism will spoil the hard work of ICC that it has done to revolutionize the old trading system.
- Incoterms 2010 and the mode of transport: how to choose the right term, Malfliet, J. (2011). In Management Challenges in the 21st Century: Transport and Logistics: Opportunity for Slovakia in the Era of Knowledge Economy (pp. 163-179). City University of Seattle Bratislava. This paper explains how to select the right term and Incoterms 2010 for logistics and the methods of successful delivery of goods.
- Facilitating international electronic commerce by formalising the Incoterms, Foekens, A., Mitrakas, A., & Tan, Y. H. (1997, January). In System Sciences, 1997, Proceedings of the Thirtieth Hawaii International Conference on (Vol. 4, pp. 459-467). IEEE. The research has been carried out to highlight the role of Incoterms in relation to facilitating global e-commerce. Incoterms, global trading terms, are unique examples of valuable trading conditions used for economic transactions. This paper produces incoterms analysis based on reasoning. The analysis indicates that there are diverse types of deontic as well as defeasible logics within the Incoterms. Many Incoterm principles are declared according to deontic concepts eg. obligation and consent. The majority of regulations contain defeasible nature in context and they are meant for usual cases, however, they are overruled in outstanding situation. The outcome of this rational study would add to the argument relating deontic function and defeasible reasoning for the demonstration of and logic associated with legal fields. This paper illustrates how, depending upon rational analysis, we can apply a legal consultative system for incoterms in Prolog. It can be changed in a legal consultative system as that can give suggestions to the traders and they can select favourable Incoterms to make trading contracts.
- Transfer of risk from seller to buyer in international commercial contracts: A comparative analysis of risk allocation under the CISG, UCC and INCOTERMS, Oberman, N. G. (2016). Trabajo no publicado. This paper is about a shift of risks from the seller to the buyer in the global trading contracts under the guideline of Incoterms, CISG and UCC. Throughout the known global history, commercial trade appears as a primary liking for humans. Communities from diverse geographical locations always searched for strong financial status by enforcing successful commercial networks. This research evaluated the level of risk allocation that appears in global trading contracts including a particular evaluation of UN Trade Convention related to the sale of products. The research also evaluates the role and significance of ICC terms in relation to Incoterms and the role of UCC. The research will highlight some strong points that split the research into two primary sections. The first section is descriptive, this section examines the legal basis and their role in this matter. The second section explores and reviews the information on how UCC and Incoterms interact with regard to risk allocation. The focus of risk allocation is on the question that during global trading agreements breaches who is responsible for any damage or if goods are lost. It is convenient that products get insured during the transition of products. Furthermore, any damage to goods is identical when products reach to the destination and thus a buyer holds a stronger position comparing to the seller as the buyer can claim for any damage to goods from the insurance company. On the whole, risk allocation relies upon the selection of law that contracting parties agree upon. These rules provide every type of answer in advance to all the problems that may arise. The decisive subsequent of the assessment is that any risk allocation stipulations in accordance with the performed paperwork are unique law entities. Finally, it can be described that the application of certain agreed rules as per Incoterms can help to identify the risk allocation that emerges in global commercial contracts.
- Incoterms and UCC Article 2Conflicts and Confusions, Spanogle, J. A. (1997). The International Lawyer, 111-132. This paper is about legal obligations during trade issues and confusions with the application of Incoterms and Article 2 of UCC.
- Business environment factors, incoterms selection and export performance, Hien, N., Laporte, G., & Roy, J. (2009). Operations and Supply Chain Management, 2(2), 63-78. This research shows the role of Incoterms in operations and supply chain management in international trading context.
- The link between Incoterms 2000 and Letter of Credit Documentation requirement and payment risk, Bergami, R. (2006). Journal of Business Systems, Governance and Ethics, 1(4), 49-58. This paper discusses the role of Incoterms 2000 in association with credit documentation, obligations and payment threats.
- Logistics routing flexibility and lower freight costs through use of incoterms, Kumar, S. (2010). Transportation Journal, 49(3), 48-56. This research states that the application of Incoterms for reduced waterway trades and routing flexibility.
- Incoterms 2010: Comments on the New Revision of Delivery Terms, Bergami, R. (2011). The Vindobona Journal of International Commercial Law and Arbitration, 15(1), 157-170. This paper throws light on the Incoterms 2010 and makes a detailed discussion and comments on the New Revision of Delivery Terms.