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Overview of INCOTERMS

Overview of INCOTERMS

  • The INCOTERMS rules or International Commercial terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) widely used in international commercial transactions.
  • INCOTERMS are a set of rules which define the responsibilities of buyers and sellers for the delivery of goods under sales contract for domestic and international trade. 
  • They are authoritative rules for determining how costs and risks are allocated to parties and can significantly reduce misunderstanding among traders, thereby minimise trade disputes and litigations. 
  • They facilitate trade by promoting common understanding of the specific tasks of trading parties.
  • The are a series of three-letter trade terms related to common sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs and risks associated with the transportation and delivery of goods. 
  • The Incoterms rules are accepted by governments, legal authorities and practitioners worldwide for the interpretation of most commonly used terms in international trade. 
  • They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries.

Purpose of INCOTERMS

  • They outline when and how delivery of goods take place depending on which term is used.
  • They address specific questions related to: 
    •  Delivery of physical goods from the sellers to buyers across international borders. 
    • Carriage of goods; 
    • Export and import clearance responsibilities; 
    • Who pays what; 
    • Who arranges what 
    • Who has risks for the loss/damage of goods at different locations in total logistic chain.

Importance of INCOTERMS 2020

  • They define roles of buyers and sellers or exporters and importers in the transport arrangement of the transportation of the goods
  • They establish who bears risks in case of any loss or damage to goods at any specific point in an international journey.
  • They establish parties’ obligations relating to procurement and preparation of documents ensuring delivery of goods.
  • They provide solutions and give certainty over costs and reduce risk of disputes and disagreements.
  • They eliminate inconsistencies in language by all giving parties the same definition of specific terms within the trade agreement.