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Incoterms

In international sales the „terms of delivery“ are a main subject to each contract with its „terms and conditions“. Especially in the automotive industry where products often are produced in various production facilities at different suppliers within the overall supply chain, clear regulatories are needed for the safety of all business partners.

Part of each contract should be:

  • Shipping quantity/lot size
  • Shipping quality
  • Delivery timing
  • Cost transfer and risk taking (who is bearing the risk from which point in the process onwards)
  • Packaging and marking of the freight
  • Transport insurance

The shipping quantity generally is based on the agreed lot sized with for example minimum ordering quantities, size and weight (net or gross).

The shipping quality is mostly based on masters, samples or technical references on which the trade parties have agreed on and are measured against.

The delivery timing can include a „prompt delivery“ or a delivery for a certain period of time to fixed timings or time frames as „delivery on term“. A delivery timing can also happen „as required“ which means according to changing timings. Mostly this happens in the automotive industry as ordering schedules in this industry often fluctuate, sometimes even quite significantly, and mostly according to regularly sent schedules.

The significant role for the cost transfer as well as the risk taking for shippings, especially across borders, is governed by the „International Commercial Terms (Incoterms)“.

Once 2 parties agree on the terms and conditions a Purchase Order (PO) can be raised by the ordering party against which the manufacturing or selling party will confirm the details e.g. pick-up timing, quantity of pallets, weight etc.

What are the Incoterms rules?

The Incoterms rules are the rules set up and agreed on by the International Chamber of Commerce (ICC) for the use of domestic and international trade terms.

The Incoterms rules define the responsibilities of buyers and sellers for the delivery of goods within sales contracts and determine how costs are allocated. In general it an be said that the Incoterms spell out „What the buyer must do“ and „What the seller must do“.

What do the Incoterms cover?

Incoterms rules mainly describe tasks, costs and risks involved in the delivery of goods – excluding intangibles – from sellers to buyers.

Since the year 2000 the „Incoterms 2000“ represent a guideline for international commercial terms. Originally they had been intended to be for international trade only but have now more or less become rules for international and domestic sales.

The following overview shows the Incoterms Rules since 2000 with which party carries which risks and costs up until when and from where onwards.

The International Chamber of Commerce has released a new table of contents to the Incoterms 2010. This latest Incoterms release is valid from 01.01.2011 onwards. Compared to Incoterms 2000 the Incoterms 2010 include a reduction from 13 to 11. Four existing terms have been deleted and two new Incoterms rules have been introduced. The four Incoterms that have been deleted are Delivery at Frontier (DAF), Delivery Ex-Ship (DES), Delivery Ex-Quay (DEQ), and Delivered Duty Unpaid (DDU). Instead they have been replaced by two new Incoterms, named, Delivered at Terminal (DAT) and Delivered at Place (DAP). These two new rules have made the deleted four Incoterms superfluous and are easier to use.

The 2 Incoterms categories:

Incoterms for any Mode or Modes of Transport:

  • EXW - Ex Works
  • FCA - Free Carrier
  • CPT - Carriage Paid To
  • CIP - Carriage and Insurance Paid
  • DAT - Delivered At Terminal (new)
  • DAP - Delivered At Place (new)
  • DDP - Delivered Duty Paid

Incoterms for Sea and Inland Waterway Transport Only:

  • FAS - Free Alongside Ship
  • FOB - Free On Board
  • CFR - Cost and Freight
  • CIF - Cost, Insurance and Freight

Incoterms 2010: Detailed Summary

Please note: an Incoterm must be accompanied by a “named place” ex. “FOB Stuttgart”, “EXW Szolnok”

Please note for your daily trade in business that Incoterms is simply a guideline to help trade partners to fix transport cost and responsibility issues. This interpretation is simply provided as a guideline only. Each industry might have individual and more special conditions and additional terms that may be added to the Incoterms as explained above.

References

  • C. Büter, Außenhandel – Grundlagen globaler und innergemeinschaftlicher Handelsbeziehungen, Springer-Verlag Berlin Heidelberg, 2010, p. 219-226
  • International Chamber of Commerce (ICC), Incoterms 2010, 2010
  • H. Pooler, D. Pooler, S. Farney, Global Purchasing and Supply Management: Fulfill the Vision, Springer, 2nd edition, 2004, p.349-372
  • German Business Information, Mondaq Business Briefing (MONDBUSB), 2011 , p. 1-3
  • J. Barron, New Decade, New Upgrade: Incoterms 2010 Picks Up Where Incoterms 2000 Left Off, Business Credit, Feb 2011

Thomas Lamparter 2011/04/30 19:32

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logistics/incoterms.txt · Last modified: 2012/01/03 07:28 (external edit)