As we discussed in our “What are Incoterms® rules” articles, Incoterms® are a standard set of rules for the delivery of goods. In particular, they stipulate which party to a sales contract shoulders the risk, costs and responsibilities at any given time during the delivery of goods in an export/import transaction. Incoterms® streamline these negotiations and play a significant part in international trade. However, many exporters misuse them. This article focuses on five things to remember about working with the Incoterms® rules.
#1. The Incoterms® Rules Apply to Delivery only
The ICC Incoterms® are not concerned with payment methods, the passing of ownership, or your service providers. They apply only to delivery and only to the buyer and seller.
#2. You must State Incoterms® 2020 when using the Incoterms® Rules
The Incoterms® rules are updated more or less every ten years, with the latest version being the 2020 rules. In order to ensure accuracy when using them, you must not only state the current version but also keep up to date with any of the changes to the rules.
#3. An Incoterm® should always be followed by the name of the place where Delivery is affected
When stating the Incoterm® in an international sales contract, you must include the place at which delivery takes place. For example, FOB Durban or FCA OR Tambo International Airport.
#4. Certain Incoterms® can only be used for Ocean transport
As we discussed in our “Incoterms® explained” article, certain terms are for usage in sea freight only. For example, FAS, FOB, CFR and CIF are sea freight terms and can only be used when the main leg of the journey utilises ocean transport.
#5. Incoterms® are a Negotiation between you and your Buyer
The usage of certain Incoterms® assigns a great deal of risk and cost to an exporter. However, the decision to use a particular term is the result of negotiation between the buyer and seller and may require one or both parties to compromise.
Whether working with Incoterms®, marketing for exports or choosing the right mode of transport, exporting requires a great deal of on-demand guidance. Thankfully, Trade Forward Southern, in collaboration with the International Trade Institute of Southern Africa, has created a free and comprehensive online School of Export, providing on-demand training on various aspects of global trade.
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