Incoterms

Incoterms are a series of contractual provisions developed for the international trade in goods. They serve to standardize and expedite trade between companies in different countries. The Incoterms are recognized worldwide and are recommended by international organizations (UNCITRAL, UNECE, etc.), but do not have the status of a formal UN agreement. They are used to determine which party is responsible for the costs of transportation and insurance. Incoterms are components of sales contracts (contracts for the purchase of goods) and primarily govern delivery, costs and risk transfers.

In logistics, Incoterms are frequently used to govern the rights and obligations when sending goods. These are a set of international agreements that may seem a bit complicated at first glance. However, once you understand the rules, it is easy to use Incoterms. The rules for Incoterms were originally established by the International Chamber of Commerce (ICC) and have been under the protection of the WIPO agreement for over 60 years. [2]

The use of Incoterms is crucial to clarify rights and obligations between buyer and seller in international trade contracts. When choosing the right Incoterms, a number of factors must be taken into account, such as the type of transport or the structure of the supply chain network. Incoterms are included in the commercial contract between buyer and seller and describe the obligations of both parties in terms of transportation, insurance, duties, shipping documentation, customs formalities, etc. Incoterms also determine when the risk of loss of goods passes from the seller to the buyer. The difference between Incoterms lies mainly in which tasks the buyer and which tasks the seller have to take over. Depending on which Incoterm is used, one party may have to take on some or all of the logistics tasks - from organizing transportation to preparing necessary documents. When selecting a particular Incoterm, buyers and sellers should carefully consider and ensure that it meets their specific needs. The wrong Incoterm can cause costly mistakes and create significant legal problems. Therefore, it is important to work with an expert who can help you select the right Incoterm. In addition, it is very important that buyers and sellers know the regulations of their respective countries. It is not advisable to carry out international trade transportation without a thorough knowledge of all relevant laws and regulations regarding customs duties and taxes. It is therefore advisable to involve specialized consultants or law firms to ensure that the laws are complied with. In summary, the correct application of Incoterms provides you with all the information about the delivery process, as well as rights and obligations of all parties involved - from the manufacturer to the end user.

Incoterms define the responsibilities and rights of the parties in an export or import transaction. There are different types of Incoterms used for different trade practices. Depending on the nature of the transaction, the terms may vary, so it is important to be aware of the relevant Incoterms before entering into a contract.

The differences between the Incoterms are mainly in the rules and responsibilities regarding transportation and customs clearance. Some Incoterms describe where the goods are shipped from, others describe when the buyer receives the goods and whether the buyer is responsible for customs clearance. Some types of Incoterms are also used to determine which costs must be paid by the seller or the buyer.

In most cases, Ex-Works Incoterms differ from the Free Carrier Incoterm in that the buyer is given more responsibility for transportation and customs clearance. With the Free Carrier-Incoterm, the buyer is allowed to hire a freight forwarder or courier service himself. In contrast, with the ex-works Incoterm, the buyer collects the goods directly from the seller and is responsible for all delivery costs incurred. Another difference exists between the Cost Insurance and Freight (CIF) Incoterm and the Free On Board (FOB) Incoterm: The CIF Incoterm states that the seller is responsible for all delivery costs incurred as well as insurance costs; in contrast, with the FOB Incoterm, the buyer is responsible for all delivery costs incurred as well as insurance costs.

The handling of tax matters can also vary depending on the type of transaction. In the Delivery Duty Paid (DDP) incoterm, the seller steps into the role of payer; therefore, he must pay for all necessary tax duties and also handle all related documentation. With all this work, it is his responsibility to ensure that all legal requirements are met, and no mistakes are made.

In contrast, for Delivery Duty Unpaid (DDU) Incoterms, the buyer must handle the fiscal matter himself. There are other differences between the various Incoterms depending on the transaction - therefore, interested parties should inform themselves about their respective details before concluding any contract in order to exclude legal consequences for the protection of all parties! [5]

In logistics, Incoterms are used to regulate the responsibility for the transport of goods between the buyer and the seller. The Incoterms determine who bears which costs and when the goods are handed over. In addition, the Incoterms provide information about where the goods are unloaded and whether the buyer has to transport the goods further or pick them up themselves. Frequently used Incoterms include EXW, FOB, DAP and DDP.

• EXW means that the seller makes the goods available at the factory. The buyer is responsible for all transport and costs incurred.
• DAP means that the seller delivers the goods to the specified destination and bears all costs incurred.
• DDP means that the seller delivers the goods to the specified destination and bears all costs incurred, including customs duties and import taxes.
• FOB means that the seller brings the goods on board the ship. The buyer is responsible for further transport and all costs incurred. [6]

In practice, Incoterms are used for a wide range of commercial transactions. Below are some examples where these rules are applied.

1. FOB (Free On Board): This Incoterm is often used for sea transport and means that the seller delivers the goods on board the ship and assumes the costs for the transport, but from here on the responsibility begins for the buyer.
2. EXW (Ex Works): The EXW Incoterm represents a very simple way to hand over the goods: The seller has delivered as soon as the goods are provided at the location. However, the buyer bears all transport and insurance costs for the transport of the goods from the seller's storage location to the destination.
3. CIF (Cost Insurance and Freight): With this Incoterm, both the buyer and the seller bear a certain amount of risk: with the CIF Incoterm, the seller organizes and pays for the sea transport to the port of destination and takes out transport insurance. However, the transport risk passes to the buyer at the port of shipment, even if the seller has taken out insurance in favor of the buyer for protection. The seller is responsible for organizing the transport and ensuring that the goods are fully insured.
4. DDU (Delivered Duty Unpaid):With this Incoterm, the seller assumes the risk and cost of transportation, but not the duties or taxes that may be imposed by the destination. The duties or taxes are paid by the consignee and must be paid upon delivery.
5. DDP (Delivered Duty Paid): The DDP-Incoterm offers the greatest possible service and convenience for the buyer: the seller organizes the shipment, insures the goods and also takes care of any customs duties or taxes incurred in the destination country. Therefore, the buyer does not have to bear any additional financial burden to collect his goods after delivery on site. Companies with international operations in particular should therefore definitely familiarize themselves with the various Incoterms in order to be able to conduct their commercial transactions in a legally secure manner. It is also advisable to consult a specialist lawyer or legal advisor in order to clear up uncertainties in advance and prevent misunderstandings - especially with regard to global business relationships and international contract drafting. [7]

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