What are INCOTERMS?
Subject: What are INCOTERMS?
INCOTERMS, or international commercial terms, specify the point of transfer for a product and the responsibilities and risks to the exporter and importer during the delivery process.
INCOTERMS 2010 of the ICC (International Chamber of Commerce) went into effect on January 1, 2011, and in principal, supersede those from the year 2000. However, if sellers and buyers so desire and document the transaction properly, from 2011 forward they can continue to transact purchases and sales utilizing the INCOTERMS from 2000. It should be noted that INCOTERMS are not laws which are superseded automatically as new ones are issued.
As it has done in the past and to the highest extent possible, the ICC in this latest review has revised the INCOTERMS to reflect the current reality of international trade. The ICC has provided greater flexibility to these rules while bearing in mind such logistical aspects as the safety of cargos and the extensive increase in the use of electronic documentation.
The following information should be noted in regards to the changes that have been made:
- Two categories of INCOTERMS 2010 have been established:
- INCOTERMS "Multimodal" - Any Mode of Transport (EXW, FCA, CPT, CIP, DAP, DAT, and DDP)
- INCOTERMS "Maritime Only" - Sea and Inland Waterway Transport Only (FAS, FOB, CFR and CIF
The new rules clearly state that INCOTERMS Multimodal must always be applied to sales of goods in containers.
In the following, the INCOTERMS Multimodal are described before the INCOTERMS Maritime Only.
- In regards to INCOTERMS 2000, four are no longer in use:
- DDU (Delivered Duty Unpaid)
- DAF (Delivered at Frontier)
- DES (Delivered Ex Ship)
- DEQ (Delivered Ex Quay)
In practice, three of the above (DAF, DES, and DEQ) were not utilized frequently.
- Two new INCOTERMS have been created in the 2010 rules:
- DAT (Delivered at Terminal)
- DAP (Delivered at Place)
DAT can be utilized for all types of transport, but has special uses for maritime shipping. Furthermore, like the former DEQ, DAT (maritime) designates that the delivery of goods is on the quay (dock) at the port of destination, after the discharge from the vessel.
DAP shares the same features as the former DAF and DDU, by designating that the goods are to be delivered at a certain place in the country of destination, and by any mode of transport. However, the elimination from DAP of the restrictive term "Frontier" (Border) makes the rule much more flexible than the former DAF.
- In foreign sales is not advisable to use EXW (Ex Works) due to problems that the seller might have the obtaining the SAD (Single Administrative Document - required for exporting, importing or transporting “goods in transit” within the European Union or the European Free Trade Area), taking into account that export customs clearance must be obtained by the importer. It should be noted that in the E.U., exporters must file for and maintain the SAD for a period of 4 years from the completion of clearance for export and that tax authorities (within the above period) may require exporters to present that documentation.
- For domestic sales is also not advisable to use EXW since, in theory, this rule does not include either the purchaser's cost or responsibility for loading and transporting the cargo from the seller's warehouse (however, in practice, the seller, through its warehouse staff, always loads the vehicle on their own premises.) It should be noted that FCA Factory (or Named Place) does include costs and responsibilities for the seller when the vehicle is loaded on the seller's premises and therefore results in INCOTERM rules much more realistic to international trade.
- For sales of merchandise in containers the utilization of INCOTERMS FCA (Free Carrier {Named Place}), CPT (Carriage Paid To {Named Place}) or CIP (Carriage and Insurance Paid To {Named Place}) are recommended since containers are not usually sent FOB (Free on Board {Loading Port}), CFR (Cost and Freight to {Destination Point}) or CIF (Cost, Insurance and Freight to {Destination Point}) which are INCOTERMS initially intended for general cargo. Behind this proposed change in favor of FCA, CPT or CIP there is a rationale: to reduce the seller's risk of loss or destruction of merchandise
In FCA Port, for example, the seller transfers the risk to the buyer upon delivering the goods at the port of departure and is not responsible for what may happen to the goods at the port terminal, either during their stay on the quay or during the subsequent loading of the vessel.
- The new FOB 2010 includes the cost of stowage in the port of departure by the exporter.
Delivery of the goods "on board" means the exporter must deliver the goods stowed "on board the vessel." Gone is the concept of surrender "on the ship's rail" and that imaginary line. There are two reasons for the change:
- INCOTERM FOB fits the reality of modern stowage
- Potential double billing (both exporter and importer) for the cost of the stowage in the port of departure is avoided (which was possible under FOB 2000.
- There is a new regimen of responsibility for FOB, CFR and CIF: from "on board the vessel" to "on board the departure port".
The exporter therefore becomes responsible for securing the goods into stowage on the vessel. In these three INCOTERMS, the responsibility (for losses and damage to the goods) passes from the exporter to the importer only when the goods are stowed on the ship. It is a logical consequence of the change in 2010 for FOB.
P&N Logística, Comercio Exterior y Aduanas offers the following services:
- International transport logistics for your different modalities (maritime, air, land, and rail)
- Advice on Mexican customs law, for which we have a team of skilled lawyers for that discipline
- Tariff Classification of goods and calculation of taxes on foreign trade (IGI, DTA, VAT, IEPS, ISAN, and transitional measures)
- Advice on free trade agreements signed by Mexico in the world, Mexican Official Standards, UVA's, Standard Certificates.
- Management permits in different federal entities (Ministry of Economy, COFEPRIS, SEMARNAT, SAGARPA, SHCP, IMPI)
- Importer Registry rental (except chemicals, chemical precursors and radioactive materials)
- Tax deposit and storage
- International insurance
Click here for the Profile, Address, Phone Numbers and Products of P&N Logística, Comercio Exterior y Aduanas
Alternatively, contact P&N Logística, Comercio Exterior y Aduanas directly for more information about the services they offer.
Add comments about this article
