Incoterms

Contents

• What are Incoterms?
• The Importance of Incoterms in International Trade
• Conditions Regulated by Incoterms
• Groups of Incoterms
• Terms of Incoterms
• Important Nuances of Incoterms
• How to Choose Incoterms Conditions

What are Incoterms?

Incoterms (International Commercial Terms) are specially designed rules that regulate the delivery of goods in international trade. These rules establish clear rights and obligations for both the seller and the buyer in the area of logistics. Incoterms describe 11 different delivery conditions that apply in most countries, including those in Europe and America. This enables participants in international trade to more easily reach agreements in supply contracts, as it is sufficient to mention a specific term to understand which rules apply to the transaction.

The Importance of Incoterms in International Trade

The primary function of Incoterms is to standardize procedures related to the sale and purchase of goods. These rules create a unified legal language that helps to smooth out differences in legal systems and customs of various countries, as well as clearly define the rights and obligations of the parties. The use of Incoterms helps to avoid mistakes in interpreting norms, which is especially important in the context of diverse legal systems. Moreover, it significantly simplifies the process of translating contracts into other languages and reduces the likelihood of disputes, enhancing business trust in international trade.

Conditions Regulated by Incoterms

Incoterms define several key aspects related to the delivery of goods:

• When and at what moment the responsibility for damage or loss of the cargo transfers from the seller to the buyer;
• When and where the supplier delivers the goods to the buyer, that is, at what moment the obligations are considered fulfilled;
• How transportation costs and responsibilities for insurance, as well as customs clearance and loading/unloading operations, are distributed.

However, it is important to note that Incoterms do not regulate:

• The procedure for the transfer of ownership rights to the product;
• The conditions of payment for the cargo, the issuance of invoices and bills;
• Force majeure events and their consequences;
• The liability of the parties for breach of contract terms.

These aspects should be separately specified in the contract.

Groups of Incoterms

Incoterms are divided into four groups that reflect the level of responsibility and obligations of the seller:

1. Group E: The seller is responsible for packaging and delivering the goods, while the buyer assumes all risks and organizes the delivery.
2. Group F: The seller prepares export documents and hands over the goods to the carrier, while the buyer is responsible for delivery and customs procedures during import.
3. Group C: The seller organizes the delivery and prepares export documents, but is only responsible until shipment.
4. Group D: The seller is responsible for the goods until the buyer receives the product.

Terms of Incoterms

Incoterms include 11 terms, 7 of which are suitable for deliveries by any mode of transport, while 4 are applicable only for maritime transport. Each letter of the term indicates its group. For example:

• EXW: The seller packages and delivers the goods at their warehouse.
• FCA: The seller hands over the cargo to the carrier, while the buyer organizes the delivery.
• FOB: The seller delivers the cargo to the ship, after which the responsibility transfers to the buyer.
• CIF: The seller insures the goods and organizes their delivery to the buyer's port.

Important Nuances of Incoterms

Incoterms have their own features. They only apply to tangible goods and do not cover services and intangible assets. Parties may use different versions of the rules, specifying this in the contract. It is also important to remember that Incoterms do not replace the international supply contract, but simply simplify it. In most cases, it is not indicated who is responsible for insuring the goods, and this issue should be clarified separately. Incoterms do not protect against all risks, so it is recommended to involve professionals in formalizing transactions.

How to Choose Incoterms Conditions

The choice of Incoterms conditions directly affects the cost of the transaction. The less responsibility the seller has, the higher the contract price. When selecting conditions, it is important to consider the trading experience and the willingness to involve specialists. For instance, beginner buyers may find DAP and DPU terms suitable, where most obligations rest with the seller. As companies gain experience, they may transition to more independent terms, such as EXW or FCA. Regardless of the choice, parties should pay attention to details and consult with lawyers and logistics professionals to avoid issues with contracts and customs.