In a pickle about Incoterms?

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Incoterms (International Commercial Terms) are a set of globally recognised rules established by the International Chamber of Commerce (ICC) that define the responsibilities of sellers and buyers for the delivery of goods under sales contracts. These terms are used to clarify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.

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While Incoterms are international by nature, they are also widely used within the UK for both domestic and international trade. The latest version of Incoterms is Incoterms 2020, which came into effect on January 1, 2020.?

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Here are the key Incoterms:

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Group 1: Incoterms for Any Mode of Transport

EXW (Ex Works): The seller makes the goods available at their premises. The buyer bears all risks and costs including loading the goods onto a vehicle at seller's premises.

FCA (Free Carrier): The seller hands over the goods, cleared for export, and puts them into the custody of the carrier named by the buyer at the named place. The risk transfers to the buyer once the goods have arrived at the terminal / place agreed.

CPT (Carriage Paid To): The seller pays for the carriage of the goods to the named destination. The risk transfers to the buyer when the goods are handed over at the point where the goods are taken in charge by the first carrier.

CIP (Carriage and Insurance Paid To): Similar to CPT, but the seller also pays for insurance. The seller must obtain insurance for the buyer’s risk during the carriage.

DAP (Delivered at Place): The Seller is responsible for arranging carriage and delivery of the goods, ready for unloading from the arriving conveyance at the named place. The risk transfers when the goods are available for unloading.

DPU (Delivered at Place Unloaded): The seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named place of destination. The seller bears all risks and costs of delivering and unloading the goods at the named place.

DDP (Delivered Duty Paid): The seller delivers the goods when they are placed at the disposal of the buyer, cleared for import, and ready for unloading at the named place of destination. The seller bears all the costs and risks, including import duties and taxes.

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Group 2: Incoterms for Sea and Inland Waterway Transport

FAS (Free Alongside Ship): The seller delivers when the goods are placed alongside the vessel at the named port of shipment. The buyer bears all costs and risks from that moment.

FOB (Free On Board): The seller delivers when the goods pass the ship’s rail at the named port of shipment. The buyer bears all costs and risks from that point.

CFR (Cost and Freight): The seller pays for the carriage of the goods to the named port of destination. Risk transfers when the goods pass the ship’s rail in the port of shipment.

CIF (Cost, Insurance and Freight): Similar to CFR, but the seller also pays for insurance against the buyer’s risk of loss or damage to the goods during carriage.

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Application in the UK

In the UK, Incoterms are used extensively in both domestic and international trade. Businesses often specify Incoterms in their contracts to avoid misunderstandings and disputes.

It's important for businesses to understand these terms to negotiate contracts effectively and manage the logistics and financial responsibilities associated with shipping goods.

For UK companies involved in international trade, understanding Incoterms is particularly crucial post-Brexit, as trade agreements and customs procedures have changed.

Businesses should ensure they are using the correct Incoterm for their specific transaction to clearly define the obligations, risks, and costs for each party involved in the delivery of goods.

If you'd like further clarification on this or any other aspect of international trade, VARTAN are available to support and guide you.