Freshly armed with the Incoterms Rules 2020 certification from the Forum of International Trade Training, Canada, I am excited to share the knowledge I have gained. This article reflects my journey of learning, revealing the profound purpose and significance of these rules in the realm of international trade.
Incoterms rules form a universal blueprint utilized worldwide in international and domestic contracts for the shipment of goods. The term "Incoterms" symbolizes "International Commercial Terms," a brand endorsed by the International Chamber of Commerce (ICC). In the vibrant world of Incoterms Rules, several key numbers hold importance:
1936: The year when the seminal Incoterms rules were first introduced.
6: The count of times the Incoterms have been updated, mirroring the unceasing evolution of international trade. The Incoterms® 2020 rules mark the most recent adaptation.
3: The goals of applying Incoterms rules in international trade negotiations, specifically, to define the obligations of sellers and buyers, evaluate associated costs, and establish when risk transfers.
2: The categories of Incoterms rules are bifurcated into rules for any mode of transportation and rules for sea and inland waterway transportation. Depending on the shipment’s departure and arrival points, alongside the transportation modes, exporters and importers must judiciously select the rule that perfectly aligns with their situation.
11: The total number of Incoterms rules, each illustrating diverse scenarios related to the international transportation of goods.
3: Each Incoterms rule is represented by a succinct trio of letters.
10: The obligation categories detailed in Incoterms 2020 for both sellers and buyers. These categories elucidate who holds the responsibility, incurs the costs, and bears the risks during the shipment of goods for a sales transaction.
When it comes to choosing the right rule for your international shipping, keep these factors in mind:
Cost Factor: The financial implications of international shipments can be substantial due to the multiple stages and different stakeholders involved. It's crucial to comprehend how these costs are distributed. For example, under the EXW rule, the buyer assumes all costs, covering everything from export and import customs clearance to shipping and handling, up until the final destination. In contrast, under the Delivered Duty Paid rule, the seller assumes the cost responsibility. But remember, cost distribution should not be the only determining factor when choosing a rule.
Responsibility Factor: Rules can be grouped based on the shift of responsibility. Rules that begin with the letter E suggest minimal responsibilities for the seller, fulfilled when the goods are ready for shipping. Rules that start with the letter D place minimal responsibilities on the buyer, as the seller ensures delivery to the buyer’s side.
Product Factor: The selection of an Incoterms® rule should be appropriate for the products involved, taking into consideration the type of goods and the means of transport. For instance, FAS (Free Alongside Ship) is apt for everyday items but may not be suitable for medical supplies required urgently.
Knowledge Factor: Consider the buyer's familiarity with international trade. If the buyer is new to international trade, a D term might be more suitable, as it reduces the buyer's burden of arranging export clearance and transportation.
Cost Advantages: Reflect on whether the buyer or the seller can achieve a cost advantage for transportation and warehousing. If a buyer, for instance, can arrange cost-effective transportation due to existing relationships with carriers, this should be factored into the decision-making process.
Obligation Factor: Understanding the ten categories of obligations is paramount before selecting an Incoterms rule for your next international shipment. The shippers mentioned on transport documents can include exporters, importers, agents, trading houses, or freight forwarders. A clear grasp of their roles and responsibilities helps avoid potential disputes.
In conclusion, while Incoterms are not sales contracts, they are crucial supplementary clauses that strengthen sales contracts. Modifying any Incoterms rule is generally discouraged. If trade partners wish to modify an Incoterms® rule, the specifics should be clearly defined in the sales contract. Although not obligatory, Incoterms are highly recommended to streamline negotiations. Seeking advice from Incoterms experts and legal counsel when choosing Incoterms for your international shipment is a smart move to ensure accurate rules are adhered to, thereby avoiding potential issues with delivery, payment, unexpected costs, and even significant legal disputes.
Lastly, I want to dedicate this article to my two amazing instructors, Leroy Lowe and Lora Rigutto Vigliatore. I am grateful for their incredible content and engaging teaching style. I also extend my gratitude to FITT for providing a stellar interactive platform that made learning accessible and enjoyable.