The International Commercial Terms (INCOTERMS) refers to internationally standardized definitions and obligations related to cross-border movement of goods and assets. INCOTERMS are similar to commercial law but bear no legal binding. For example, the terms do not define the place jurisdiction, neither the terms of payment. Nevertheless, lawyers and international courts across the world recommend applying the INCOTERMS. That is why the actual contract get supplemented by the INCOTERMS with the intention to avoid any kind of misunderstanding between the parties of contract.
The main benefits of the INCOTERMS lie in the fact that irrespective of the legal framework all parties involved have a common understanding of what is meant by each term. This largely serves the idea that a Chinese and a Colombian have the same understanding of the commercial terms and the obligations involved, for example this may refer to the cost and risk associated with a transport from A to B.
Which contract party takes responsibility in case of damage of the assets during transportation?
Which party covers the expenditures during the phases of transportation.
In 1936, the INCOTERMS got published by the International Chamber of Commerce, and since then, have frequently been updated. In 2010, the total amount of terms got reduced from 13 to 11 terms: four out of eleven only apply to sea and inland water transportation. All of the eleven terms are supplemented by specific explanation that all parties involved should be familiar with:
- EXW (Ex Works) refers, from a vendor perspective, to the concept of a simple sale directly from the production plant. The seller has complied with all obligations as soon as he delivered the merchandise at the buyer’s storage building.
- FCA (Free carrier): The seller delivers merchandise for export and hands the merchandise to the carrier named by the buyer at the agreed location.
- DAT (Delivered at terminal): The seller takes care of unloading from means of transportation and the delivery of merchandise to bespoke location.
- DAP (Delivered at place): The seller delivers the merchandise to the place agreed by the parties ready for unloading from means of transportation.
- CPT (Carriage paid to): The buyer takes the risk of transportation, while the seller pays the transportation charges.
- CIP (Carriage insurance paid): Equals CPT but involves additional obligations for the seller, such as paying the insurance premium.
- DDP (Delivered Duty Paid): Marks the opposite to EXW. Seller’s obligations include the transportation, customs brokerage, payment of duties and the delivery to a specific point of destination – in addition to the fact that the seller bears all risks associated with the transportation.
The following table gives an overview of the different costs associated with each term.
You may find the current INCOTERMS here. Our News-Blog covered the latest changes and background information on commercial law and customs in Mexico. If you have any questions, please do not hesitate to contact us. We would do our best to answer as soon as possible.