Differences in the trade practices of different countries can lead to mutual misunderstandings between the parties to the transaction, which leads to disputes and legal proceedings, accompanied by loss of time and money. To avoid these problems, the International chamber of Commerce has developed rules for the interpretation of the most widely used trade terms in the field of foreign trade, known as INCOTERMS (from the English international commerce terms Ц "International trade terms"). International trade terms are standard terms and conditions of a sales contract that govern:
- distribution between the seller and the buyer of obligations and transport costs for the delivery of goods, that is, determining what costs and up to what point the seller bears, and what, starting from what point, the buyer;
- the moment when the risk of damage, loss or accidental loss of cargo passes from the seller to the buyer;
- the date and place of delivery of the goods, that is, determining the moment when the seller actually transfers the goods to the buyer or his representative (for example, a transport company), therefore, the fulfillment or non-fulfillment by the first of its obligations under the delivery terms
The advantage of INCOTERMS terms is the unambiguous interpretation of their content in courts, primarily arbitration courts, in almost all countries.
In other words, the INCOTERMS rules allow us to avoid discrepancies in the interpretation of the terms of purchase and sale transactions.
INCOTERMS rules were first adopted in 1936. Their changes and additions were made in 1953, 1967, 1976, 1980, 1990 and in 2000. On January 1, 2011, the latest version of INCOTERMS 2010, REFLECTING the changes that have taken place in international trade since 2000, came into force. These changes include increased attention to transport safety, which became particularly relevant after the events of September 11, 2001, as well as the widespread use of electronic means in commercial transactions.
The new version removes four definitions (DAF, DES, DEQ, and DDU) and replaces them with two new ones Ц DAT ("delivery at the terminal") and DAP ("delivery at the point"). The term DAP actually combines the terms DAF, DES and DDU from the previous version of INCOTERMS 2000. Thus, the number of delivery terms was reduced from 13 to 11. The new classification system divides delivery terms into two groups: EXW, FCA, CPT, CIP, DAT, DAP, DDP apply to all modes of transport, while FAS, FOB, CFR and CIF apply only to water transport.
Of course, INCOTERMS do not regulate all the obligations of the parties under an international sales contract, but only the most basic conditions for the delivery of goods. Today, 11 trade terms of INCOTERMS 2010 allow us to determine how the obligations of the parties are distributed for transportation and insurance, as well as for performing customs formalities for the export and import of goods.
Legally, INCOTERMS relate to the customs of international trade and are applied if they are referred to in a foreign trade contract. These rules are Advisory in nature and their use depends on the will of the Contracting parties. If the terms of delivery are interpreted differently in the contract and in INCOTERMS, the interpretation set out in the contract takes precedence.
If for any reason none of the 11 delivery bases is suitable, the parties to the agreement may, by mutual agreement, change the content of the basic terms of delivery referred to in the agreement. The content of these changes should be specified in detail, as they can significantly affect the price of the product.
If the parties to the contract decide to use a commercial term that is not included in INCOTERMS, then the contract must describe in detail all the conditions that it implies. Moreover, a detailed description of the terms of delivery in the contract allows you to do without INCOTERMS.
If you still decide to use the INCOTERMS rules, you must make a corresponding reference in the contract (for example, "delivery is carried out on the terms of CIP Moscow in accordance with INCOTERMS 2010"). Please note that in order to avoid disagreements in the interpretation of terms, you should clearly indicate which version of the rules is used by the parties to the transaction Ц 1990, 2000 or 2010.
In addition to contracts, the terms INCOTERMS are necessarily used in the preparation of customs declarations, and are also specified in some accompanying documents, such as the international waybill (CMR) and invoice.
It should be taken into account that INCOTERMS do not determine the moment of transfer of ownership of the goods (for this purpose, there is a Civil code) and cases of release of the parties from obligations in the event of unforeseen and force majeure circumstances, as well as the consequences of violation of obligations by the parties, except for the transfer of risks and costs if the buyer fails to fulfill its obligations to accept goods or appoint a carrier under the terms of group F.
When concluding a foreign trade contract, even if it contains a reference to INCOTERMS, these issues should be specified separately.
Interpretation of foreign economic terms INCOTERMS 2010
Group E Ч place of Departure):
†(from The English ex Works Ц "from the place of work") Ц a trade term meaning "pickup". The seller's liability ends when the goods are delivered to the buyer or a carrier hired by the buyer at the seller's premises (for example, a warehouse or store). The seller is not responsible for loading the goods on transport, all costs for the export of goods from the warehouse, transportation, customs clearance are borne by the buyer. Always used with the seller's location, for example, EXW London.
(from the English free Alongside Ship Ц "free along the side of the ship") Ц means that the seller bears the cost of delivery to the port of departure. The seller's obligations to deliver the goods are considered fulfilled after the goods are placed along the ship's side at the berth or on lighters (at the agreed port of shipment). The buyer pays the costs of loading, chartering, insurance, unloading and delivery to the destination. Risks are transferred at the time of delivery to the berth of the port of loading.
(from the English free On Board Ч "free on Board", literally Ч free on Board the ship) Ч a term used to refer to the terms of delivery of cargo, determining the party that bears the cost of transportation, and the point of transfer of responsibility for the cargo from the seller to the buyer. The terms of the FOB stipulate that the seller is obliged to deliver the goods to the port and load them on the ship specified by the buyer, the cost of delivering the goods on Board is borne by the seller.
Group C Ч Main Carriage Paid):
†(from the English. Cost and Freight Ч "cost and freight") means that the seller pays for transportation to port, loading and freight of the vessel, and also provides customs procedures for exporting the goods (including paying fees). The risk of loss or damage, as well as additional costs after the goods pass through the ship's handrails, passes to the buyer.
†(from the English. Cost, Insurance and Freight Ч "cost, insurance and Freight") Ч means that the seller's obligations are considered fulfilled when the goods have passed through the ship's rail at the port of shipment, and the sale price includes the cost of the goods, freight or transport costs, as well as the cost of insurance for sea transportation.
†(from the English. Carriage Paid To Ч "freight and carriage paid to...") is an international trade term that applies to all modes of transport, including multimodal transport. The seller bears the costs of freight and transportation to the destination. The buyer pays for cargo insurance. Risks are transferred at the time of delivery of the cargo to the first carrier.
†(from the English Carriage and Insurance Paid to Ц "freight, transportation and insurance paid to..." - an international trade term that means that the seller will deliver the goods to the carrier named by him. In addition, the seller must pay the costs associated with the transportation of the goods to the named destination. The seller's liability ends after the goods are delivered to the carrier. If there are several carriers, the liability ends after the goods are delivered to the first carrier. The buyer bears all risks and any additional costs incurred after the product has been delivered.
Group D Ч Delivery (Delivery):
†(from the English. Delivered At Terminal is an international trade term that can be used for deliveries by any type of transport, as well as when using more than one type of transport. It means that the seller delivers the goods to a terminal agreed with the buyer at a named port or other destination. The seller is obliged to pay the costs associated with the transportation of the goods to the named destination. A "terminal" can be any location, such as a pier, warehouse, container yard, air, auto, or railway terminal. The seller bears all risks associated with the delivery and unloading of the goods. The parties are recommended to determine the most accurate terminal and, if possible, a specific point at the terminal, with the delivery of the goods to which the seller's obligations are considered fulfilled.
(from the English. Delivered At Point is an international trade term that can be used for deliveries by any mode of transport, as well as when using more than one mode of transport. The term means that the goods ready for unloading are transferred to the buyer on the arriving vehicle at the agreed destination. The seller bears all risks associated with the delivery of the goods to the named place. The parties should most accurately determine the point at the agreed destination, since the risks up to this point are borne by the seller. The seller is obliged to pay the costs associated with the transportation of the goods to the named destination. DAP requires the seller to perform customs formalities for the export of goods, if applicable. However, the seller is not obliged to perform customs formalities for import, including paying import duties. If the parties intend to assign the seller to perform customs formalities for import, pay any import duties and perform other customs formalities for import, it is advisable to use the term DDP.
†(from the English Delivered, Duty Paid Ц "delivered, duty paid") Ч the term is used to indicate the place of arrival. It means that the seller's liability ends after the goods are delivered to the specified location in the buyer's country. All risks, all costs of cargo delivery (taxes, duties, etc.), and responsibility for damage and loss of goods up to this point are borne by the seller. It is also responsible for customs clearance. Provisions may be added to the contract that exempt the seller from paying for certain additional formalities.