UNDERSTANDING INTERNATIONAL COMMERCIAL TERMS AND HOW IT AFFECTS PROCUREMENT AND LOGISTICS.

“Incoterms” is an abbreviation for International Commercial terms, and they are series of pre-defined commercial terms published by International Chamber of commerce relating to international commercial law.

Incoterms are used in international commercial transactions or procurement processes, and their use is very much important because it sets out the delivery terms between the buyer and seller.

Incoterms allows the parties to designate a point at which the costs and risks of transport are precisely divided between the seller and the buyer. Incoterms also allocate responsibility for customs clearance/duties between the parties.

Since Incoterms are not law but are contractual standard terms, they do not apply to a given transaction unless the parties specifically incorporate them by referring to last version of Incoterms. Incoterms are elements of the international sale contract, which may be derived from the seller´s proforma invoice .

There have been 8 revisions to the set of Incoterms rules first introduced in 1936. As global trade developed and evolved, the Incoterms® rules were revised in 1957, 1967, 1976, 1980, 1990, 2000 and 2010 to accommodate changes in global trade.

These rules form an essential part of the day to day international trade as well as domestic trades and they form an integral part of many sales contracts worldwide.

It is important to remember that “Incoterms” is not a generic name for international trade terms but is a trademark used to designate the rules devised by ICC. 

The 9th version of the Incoterms – Incoterms 2020 has been officially released on September 2019 (the centenary year of the ICC) and  came into effect from the 1st of January 2020. We thought you’d like to know. Below you’ll find a rundown of Incoterms 2020.   

Below is a summary of Incoterms and their meanings. From the first to the 7th term can be used for any mode of transport, while from the 8th term to the 11th is specifically for sea or inland waterways transportation.

INCOTERMS AND THEIR MEANINGS

1. EXW (Exworks) : This means the buyer will pick up the goods from the seller’s facility and bear all the transport charges and risks.

2.  FCA (Free Carrier) :  This means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place.

3. CPT (Carriage Paid to) : CPT means means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.

4. CIP(Carriage and Insurance Paid to) : The seller has the same responsibilities as CPT, but they also contract for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.

5. DAT(Delivered at terminal): In the 2020 edition of the Incoterms, DAT was changed to DPU(Delivered at place unloaded). DPU means the seller delivers when the goods, once unloaded are placed at the disposal of the buyer at a named place of destination. The seller bears all risks involved in bringing the goods to, and unloading them at the named place of destination.

6. DAP (Delivered at Place) : The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.

7. DDP (Delivered Duty Paid): DDP means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.

8.  FAS (Free Alongside Ship): FAS means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship, and the buyer bears all costs from that moment onwards.

9.  FOB (Free On Board) : FOB means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.

10. CFR (Cost and Freight) : CFR  means the risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

11. CIF (Cost Insurance and Freight): CIF means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination.

It is good to understand these terms properly so that your transactions with your international customers will be seamless.

But if you need more assistance with understanding these term  better or engaging your international customers in areas of procurement or logistics, write to us via info@edasglobalsupplychain.com or call +2347089921886, and we will be glad to help.

Edas Global Supply Chain Limited Provides you with reliable and cost effective  procurement and logistics services.  Get in touch today.

2 thoughts on “UNDERSTANDING INTERNATIONAL COMMERCIAL TERMS AND HOW IT AFFECTS PROCUREMENT AND LOGISTICS.

  1. Banji A Reply

    Please note that the wordings of 3 and 4 above are one and the same. Same applies to 5 and 6. Kindly check and review.

    Thank you.

    • admin Post authorReply

      Thank you Banji.
      Those terms are almost the same. We have chosen different terms for notable differentiation.

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