International Commercial Terms (Incoterms ® 2010) are issued by the International Chamber of Commerce and define the conditions under which international trade transactions take place.
In other words, the Incoterms ® 2010 determine crucial aspects such as the time of the transfer of the risks, which party is liable for cost of transports, insurance costs and custom clearance to name but a few.
By contrast with domestic transactions, exportation or importation of goods are characterised by a high level of complexity.
Indeed, as you can see in the figure below, an international transaction has to go through several steps likely to be a source of problems.
Since the Incoterms ®2010 is a standard accepted worldwide, professionals willing to avoid any ambiguity within their International sale contracts, can rely on this strong framework and thereby optimise their risk management processes.
Overall, we can distinguish between two types of Incoterms:
In addition, Incoterms ® rules can be divided 4 groups :
Group E: Goods at the buyer’s disposal in the Seller’s premises.
Ex Works (Low commitment)
Group F: Main carriage paid by the Buyer
FCA, FOB, FAS (moderate commitment)
Group C: Main carriage paid by the Seller
CFR, CPT, CIP, CIP (High commitment)
Group D: Seller’s responsible up to agreed delivery address
DAT, DAP, DDP (Very High commitment)
Attention should be paid to the fact that the transfer of ownership is not determined by the Incoterms rules, but by the terms and conditions of the sales contract.
Moreover, it is of paramount importance to clearly specify the Incoterms ®2010 version applicable in the sales contracts. Indeed, since prior versions (such as 2000, 1980 versions for instance) might imply different obligations, by embedding the Incoterms ®2010 version in the sales contract, professionals ensure that business relationships are based on clear-cut set of rules.
In addition, it must pointed out that that electronic documents are considered as an equivalent of paper format provided that the Seller and the buyer agree to use this method of communication. ( must be specified in the contract)