INCOTERMS

Incoterms is the contraction of “International Commercial Terms” and constitutes a codified set of standard contractual provisions relating to the carriage of goods. The Incoterm is essential for planning any international shipment, and is always associated with a geographical location that represents the “critical point” at which responsibility is transferred between the seller and the buyer. The latest version dates from 2020, and they are revised every ten years to reflect changes in international trade practices.

An Incoterm is not a contract of sale, but it does bind the seller to a buyer.

THE ROLE OF INCOTERMS

Incoterms are designed to share international logistics costs and risks between seller and buyer. Each incoterm mainly offers:

The division of international logistics operations and the corresponding costs between the seller and the buyer

The obligations of the seller and the buyer

The point at which the risk in the goods passes from the seller to the buyer

Documentary obligations

However, these rules do not govern:

Transfer of ownership

Method of payment

Applicable law

Jurisdiction

4 GROUPS OF INCOTERMS

There are several families of Incoterms:

2 TYPES OF INCOTERMS

These 4 groups of Incoterms are divided into two categories of Incoterms used according to the mode of transport chosen.

Multimodal Incoterms:

Suitable for all international modes of transport: sea, air, rail and road. These Incoterms are intended for use when the place where the seller hands over the goods to the buyer is not on board a ship or in a sea or river port.

EXW: Ex Works (ex works)

FCA: Free Carrier

CPT: Carriage Paid To

CIP: Carriage and Insurance Paid To

DAP: Delivered At Place

DPU: Delivered at Place Unloaded

DDP: Delivered Duty Paid

Maritime Incoterms:

The 4 Incoterms are called “maritime” because they are intended to be used when the seller places the goods on board or in the vicinity (in the case of FAS) of a ship, in a sea or river port.

FAS: Free Alongside Ship

FOB: Free On Board

CFR: Cost and Freight

CIF: Cost Insurance and Freight

TRANSPORT INSURANCE AND INCOTERMS

With the exception of CIP and CIF, where insurance is required, it is not compulsory for the other incoterms, but is strongly recommended.

For CIPs, the insurance required is “all risks”.

For CIFs, the minimum insurance required is “FAP except”.

CHOICE OF INCOTERM

1/ Depending on the goods

If the customer is exporting sensitive or high value-added goods such as frozen food or luxury goods, we recommend mastering the entire transport chain in order to choose the most appropriate means of transport.

2/ Depending on the country of destination

The more complex and numerous the formalities in the importing country, the more complicated it is for an exporting company to manage transport and its obligations. So it’s best to let the importer take charge from the moment the goods are loaded through to shipment.