What are Incoterms?
Parities or Incoterms (abbreviated as International Commercial Terms) are a set of predefined international commercial rules. Incoterms rules have been accepted by the competent and judicial authorities: governments, legal authorities and practitioners worldwide for the interpretation of commonly used rules in international trade. Even international court judgments between the parties are made on the basis of parity.
What is the primary goal of parity? In short, reducing uncertainty and closing the gap between rules and their interpretation in different countries.
Although all of this seems complicated, parities are an integral part of the International Chamber of Commerce and have existed for 60 years. It all began in 1924 and has undergone many changes, revisions and revisions over time: in 1936, 1953, 1967, 1976, 1980, 1990, and 2000. The last revision was made in 2010. Of course, incoterms are still evolving and the International Chamber of Commerce is already preparing Incoterms 2020.
Parities are essential for the undisturbed functioning of international freight transport. They are based on the United Nations Convention on Contracts for International Trade.
Frequently used terms
We have all heard of these terms, but it is not a bad idea to repeat the lesson before we begin to interpret their meanings. Among the most important terms are “delivery“, “carrier” and “freight forwarder“.
Delivery is the moment when the responsibility for the goods is transferred from seller to buyer.
A carrier is any person who offers the transportation service by any type of transportation and who offers a contract for that transportation.
Freight Forwarder is referred to a company that mediates or arranges transportation.
We also find the terms “terminal“, “franco” and “arrival“.
The terminal represents any place such as a warehouse, dock or container where the delivery of goods takes place.
Franco represents the seller’s obligation to deliver the goods to the designated place from which the carrier picks them up.
Arrival represents the moment until which the transport has been paid.
Rules for any type of transportation
The rules generally apply to the levels of responsibility borne by the seller or buyer. Parities offer a full range of rules and we will explain each one individually.
EXW – (Ex Works)
A rule where maximum liability is applied to the buyer and minimum liability to the seller. The goods are made available at the seller’s premises and the buyer bears all the risks associated with transporting the goods to their final destination.
FCA – (Franco Carrier)
The seller hands over the exported customs goods at the designated place to the carrier chosen by the buyer. This rule is ideal for any form of transportation: air, road or modal.
CPT – (Carriage Paid To) or transport rule to designated place.
The cost of freight charges are paid to the designated place. The seller bears the costs up to that designated place, and when the goods are handed over to the buyer the risk is transferred to him.
CIP – (Carriage And Insurance Paid To) or transport and insurance rule to the designated place.
All transportation and insurance costs are valid until the place indicated in the contract. Until then, all costs are borne by the seller and insurance is included in these costs. The risk is transferred to the carrier when handing over the goods.
DAT – (Delivered At Terminal) Delivered at terminal.
This rule means that the seller bears the cost of transport to the designated place. This refers to the port, destination, or warehouse that will serve as the temporary landing point for the goods. The seller must unload the goods and until he does – all the cost and risk is on him until the goods are delivered. This also includes export customs formalities as well as transit through a third country. Also, it is important to note that any delay fee or terminal deposit will generally be borne by the seller.
DAP – (Delivered At Place)
The seller makes the goods available to the buyer on a particular means of transport in the specified place. The seller bears the costs and the risk when it comes to third country transit, packaging costs and export customs formalities. The seller’s liability shall terminate at the place previously defined by the buyer’s contract of acquisition.
DDP – (Delivered Duty Paid)
In this case, the seller bears all the transportation costs and all the risks up to the moment of delivery and customs clearance of the goods. This rule places maximum responsibility on the seller and minimum on the buyer.
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