How to Choose the INCOTERMS Rule Correctly

How to Choose the INCOTERMS Rule Correctly The International Chamber of Commerce (ICC – International Chamber of Commerce) announced a free flowchart. This study aims to reduce your risks and increase efficiency by selecting the appropriate Incoterms rule in your commercial contracts. Please download the study "How to Choose the Incoterms Rule Right?" click here.

What is INCOTERMS?

INCOTERMS It was created and organized by the International Chamber of Commerce (ICC). These terms are used to clearly determine delivery obligations, costs, and risks in the exchange of goods between the buyer and seller.

The main goal of INCOTERMS is to reduce the uncertainties and misunderstandings that may arise in international trade. When used in trade agreements, it aims to clarify at what point the parties will switch ownership, risks and transport costs from the buyer to the seller.

INCOTERMS terms are expressed in the form of 3-letter abbreviations. For example, there are terms such as FOB (Free On Board), CIF (Cost, Insurance, and Freight), EXW (Ex Works) and DDP (Delivered Duty Paid). Each term sets clear rules and responsibilities on issues such as goods delivery, transport and insurance costs, customs clearance procedures and risks.

Versions of INCOTERMS have been updated over time. These updates were made in order to adapt to changes in trading practices and provide greater clarity. Currently, the 2020 version is valid.

The INCOTERMS Rule and Frequently Asked Questions in International Trade

INCOTERMS answers a variety of questions that are frequently encountered in international trade. These questions usually include:

1. Delivery Point of Goods: INCOTERMS®, sets clear rules on when and where the seller delivers the goods. For example, the term FOB (Free On Board) states that the seller transfers the goods to the buyer on board the vessel designated by the buyer at the designated port.
2. Transport Risks and Costs: By whom are the risks and costs incurred during the transport of goods covered? For example, the term CIF (Cost, Insurance, Freight) states that the seller assumes the cost of transporting goods, insurance, and freight.
3. Insurance Responsibilities: Who is responsible for insuring goods, and how extensive is that coverage?
4. Customs Transactions: The party to carry out export and import customs clearance procedures and who will cover the costs of those transactions.
5. Transport Documents and Other Documents: Which side should provide which documents, e.g. transport documents, insurance, etc.

INCOTERMS®It helps the parties clearly determine what terms will be used in their commercial contracts, thus preventing misunderstandings and disputes about transport, insurance, customs clearance, and other costs.