INCOTERMS® Rules
International Commercial Terms, or Incoterms®, are a series of defined commercial terms published by the International Chamber of Commerce and intended to communicate the tasks, costs, and risks associated with the international sale and transport of goods.
The original Incoterms rules set in 1936 were divided into four categories. In contrast, the 2010 update simplifies the list by separating the eleven terms into two categories: rules for any mode of transport and for sea and inland waterway transport. The latest Incoterms Rules 2020 was released in January with updates and new rules.
Incoterms 2020 rules for freight transportation can be found here:
A common misconception is that Incoterms have to deal with ownership and title transfer when in reality it deals with the dividing of costs and risks.
Buying and Selling International Goods
When buying or selling international goods, clearly understanding both parties’ responsibilities is of primary importance.
While several common mistakes can cause issues with a shipment, one of the most common and easiest to avoid is being vague or unspecific with the shipment details.
For example, abbreviated words or failing to specify the destination port can delay your shipment.
Not specifying where the place of risk will transfer or putting a vague or wrongly named place after the three-letter Incoterm could lead to misdirected shipments and/or extra expenses for both the buyer and the seller.
Incoterms for purchasing or selling goods that will be transported globally
When purchasing or selling goods that will be transported globally, it is crucial to identify where the title passes from the seller to the buyer.
A common misconception is that Incoterms rules deal with ownership and title transfer when, in reality, they deal with dividing costs and risks.
The sales contract should always outline the Title and ownership transfer before the shipment. Along with the title comes liability exposure and the need for marine insurance.
While commonly used, the DDP Incoterm can be confusing.
Often, sellers quote DDP without knowing how to get goods into the buyer’s country, or the buyer will accept the DDP terms without checking to see if their supplier is registered as an importer or if they have sorted out any potential tax issues.
When something goes wrong, the difficulties surrounding DDP can be more problematic and even costlier to the seller, especially as sometimes complex taxes are involved.
In some cases, taxes can only be paid by companies known to the authorities in the buyer’s country, which is often the case with VAT and local customs authorities.
In addition to potential tax and importer filing status issues, the DDP-assigned responsible party must clear the goods through customs and be knowledgeable about import regulations in that specific country.
Any issues, such as goods being improperly declared or unpaid taxes, can put an entire transaction at risk, so if unsure about DDP and the risks involved, it’s best to speak to an Incoterms expert.
Attention to detail and ensuring that the correct rule is chosen for the shipment will benefit both the buyer and seller and avoid errors in the shipment of international goods.
Since shipping regulations change constantly and navigating Incoterms can be tricky, new and experienced shippers would be well advised to call for our guidance. After all, we handle international freight daily!
To see the other ways we can help, check out our logistics or freight forwarding services to learn about the reliable and innovative solutions we provide to get your goods to or from nearly any destination worldwide.
We provide a unique, personalized service that you will not find with other companies.
Our experienced specialists are ready to help clear up any confusion.
Please call us at 800-987-4244 for questions about Incoterms® or international freight shipping.
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