Incoterms

What are Incoterms?

The International Chamber of Commerce (ICC) has published a specific set of incoterms to simplify commerce across the world. Officially, it is also called as the international commercial terms. This one is recognized globally and prevents any confusion arising in foreign trade contracts by clarifying the responsibilities of buyers and sellers.

Parties that are involved in international and domestic trade generally use incoterms as a shorthand to assist with understanding one another and the precise terms of arrangements for business. Some of the incoterms apply to specific means of transportation, and others are strictly for transportation that happen across the water.

Explaining Incoterms

The International Chamber of Commerce (ICC) came up with Incoterms back in 1936 and keeps updating them periodically to imitate the changing and altering trade practices. The mission of ICC is to promote open markets and make sure that economic prosperity remains globally active through trade.

Since this one is a networked business organization, ICC is regarded as an institute that has supreme expertise when it comes to implementing rules and regulations to direct international trade. Although adhering to incoterms is completely voluntary, the rules established by ICC are generally used by sellers and buyers as a part of regular trade transactions.

Incoterms offer a set of guidelines and rules that is universal and helpful in facilitating trade. Additionally, they also offer a common language that traders use to set terms and conditions for their trades.

Sellers and buyers can use incoterms in several activities that are required to execute business. Some of the typical activities include buying order, labelling the shipment for transportation, completing a certificate of origin or documenting free carrier agreement.

Examples of Incoterms

In certain jurisdictions, the duty cost of products could be calculated against a certain incoterm. For instance, in India, the duty gets calculated against the products’ CIF value. Back in 2010, the two primary incoterms categories were updated as well as classified on the Basis of transport modes.

As mentioned above, the first classification is applied to any transport mode and the second one is only for inland and sea waterway transport. Incoterms applied to any transport mode:

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

Incoterms applied to sea and inland waterway transport:

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