Terms of delivery. Definition of Incoterms. Historical background

Terms of delivery

Definition of  Incoterms. Historical background

Incoterms – a glossary of terms used in international commerce and trade published by the International Chamber of Commerce.

International transportation is transportation of cargoes and passengers through frontiers of countries. Nowadays, it is a very important area of activity in  international trade. Transportation is an important stage in realizing contracts for international trade. It’s always a dilemma between the seller and the buyer on who, where and when bears the responsibility for goods being carried, pays the freight and customs duties, services and insurance and on which stages the risks are transferred from the seller to the buyer.  By the 20s of the XX century, commercial traders had developed a set of trade terms to describe their rights and liabilities with respect to the sale and transport of goods. These trade terms consisted of short abbreviations. Unfortunately, there was no single interpretation of them in all countries. To improve this aspect of international trade, the International Chamber of Commerce (ICC) in Paris developed INCOTERMS (INnternational COmmercial TERMS), a set of uniform rules for the interpretation of international commercial terms defining the costs, risks, and obligations of buyers and sellers in international transactions.The purpose and development of Incoterms      The purpose of Incoterms is to provide a set of international rules for the interpretation of the most commonly used terms in foreign trade.  In order to avoid the range of problems and misunderstanding of the terms of international trade between importers and exporters the Incoterms were first published in 1936. These rules were known as "Incoterms 1936". Additions were later made in 1953, 1967, 1976, 1980, 1990 and presently in 2000.     The main reason for successive revisions of Incoterms has been the need to adapt them to modern commercial activities and to bring the rules in line with current international trade practices, because of changing modes of transport and document delivery (electronically)Incoterms 2000The revision of 2000, which has taken about two years, attracted much more users than any of the previous revisions of Incoterms. This version compared with Incoterms 1990 has few changes made in two areas:

-the customs clearance and payment of duty obligations under FAS and DEQ;-the loading and unloading obligations under FCA. Scope(масштаб): Incoterms relate not to the contract of carriage, it is the contract of sale!  And Incoterms does not provide for all the duties which parties may wish to include in a contract of sale.      Nevertheless, Incoterm can be used for other contracts, where goods are sold on the domestic markets. When parties want to include Incoterms into their contract of sale, they should made a reference on current version of Incoterms. An absence of the reference to the current version may then result in misunderstanding and conflict between parties. The structure of Incoterms 2000:Classification of IncotermsIn 1990, the terms were grouped in four basically different categories, starting with the term whereby the seller only makes the goods available to the buyer at the seller's own territory (the "E"-term: Ex works); followed by the second group whereby the seller must deliver the goods to a carrier appointed by the buyer (the "F"-terms: FCA, FAS and FOB); continuing with the "C"-terms where the seller has to contract for carriage, but without bearing the risk of loss of or damage to the goods or additional costs due to events occurring after shipment (CFR, CIF, CPT and CIP); and, finally, the "D"-terms whereby the seller has to bear all costs and risks needed to bring the goods to the place of destination (DAF, DES, DEQ, DDU and DDP). Group EThis group includes only one term - EX WORKS (... named place). “E”-term is the term in which the seller’s obligation is at its minimum. «Ex works» means that the seller has to do no more than place the goods at the disposal of the buyer at the agreed place - usually at the seller's own territory or another named place (i.e. works, factory, warehouse, etc.) usually with no transportation.

The passing point of cost and risk is when the goods leave the seller’s enterprise and the buyer has to bear all costs and risks involved in taking the goods from the seller's work.

Group FThe “F”-terms require the seller to deliver the goods for carriage appointed by the buyer and pay the freight costs.

FCA /FREE CARRIER (... named place)