International trade includes wide terminology as part of the delivery process, and one of them is Incoterms. But what does it do? With their use, the sales contracts and global trades can be made according to the rules of Incoterms.
The term was first introduced in 1936 and refers to a short abbreviation for International Commercial Terms and was created as part of the international trade. Over the years, it has advanced and includes changes in the international trade together with rules that apply to the sea and inland transport.
Since then, it has achieved a title as an industry standard for the worldwide trade. Today, it is used as an interpretation of international trading and more importantly, it is a trademark for designating the specific rules applying to the terms, but this includes only the basics.
Let’s find out more in details.
Specify The Responsibilities and Expenses Between The Seller and The Buyer
As mentioned above, Incoterms have progressed since the very beginning of its creation. For example, the International Commerce Terms have developed understanding for operational obligations between the seller and the buyer regarding the delivery of goods.
To explain it better, the fundamental Incoterms functions are the following:
- Specifying the trade transaction responsibilities between the seller and the buyer
- Clarifying the risk between the seller and the buyer under the rules regarding cargo loss or damage
- Specifying the expenses allocation between the seller and the buyer
To continue with, the rules stand as a provided guidance for all involved in the delivery: the process of destination port to buyer, the transportation process from seller to port, the transporters and insurers, to not forget the lawyers and the rest involved in the trade. Furthermore, Incoterms provide instructions to carriers, customs brokers, banks and the rest involved in financing.
What Incoterms Do Not Cover
Apart from their previously mentioned function, Incoterms does not cover all of the rules. To make it clear, they do not cover the property rights as well as breach of contract.
As a further and clearer explanation, they do not cover the following:
- Incoterms do not cover ownership of title; it is defined separately within the sales contract.
- They do not cover the payment; delivery payment is also negotiated separately.
- They do not assign responsibility for arranging insurance; it is separate expense for the buyer.
Check Them in The Sales Contract (Make sure you get what you need)
When you get the sales contract, you need to check it carefully. Useful information that you need to know for the contract is that the rules following Incoterms are accepted by the legal authorities including governments and practitioners internationally.
If the International Commercial Terms are written in the contract, the place should follow an abbreviation of three letters. As a help, you can use the specific port codes which you can find in the global port finder for a precise location defining of larger terminals. In the end, you can always check with the legal authorities in order to make sure you get what you need.
As shown above, Incoterms is used as part of the shipping agreements in order to make international trade easier. The rules often involve the relationship between the seller and the buyer, initiating the risks and responsibilities during the trade delivery.
In the end, if you want to make sure that the delivery trade and the contracts are legal and correspond to both parties’ demands, as well as, the government rules then go through it carefully. If in need, do not hesitate to consult a lawyer.