WHAT ARE INCOTERMS?

Incoterms are pre-defined commercial terms from the ICC to eliminate disputes over who pays for freight, insurance and other shipping costs during the shipment of goods. They are three letter abbreviations for trade terms for common contractual practices. These terms define costs and risks relating to the transportation and delivery of goods in sales contracts worldwide. The terms remove the uncertainties around interpretations and have been accepted by governments, legal authorities, and contractors. This means that parties can use Incoterms to help inform a number of decisions that can be made during the delivery of goods from the buyer to the seller. They are particularly important for defining the transfer of risk – the point at which the risk of the seller passes on to the buyer when they take ownership of the goods.

Shipping Terms for International Trade

International shipping can be confusing and daunting. It's important to understand all the shipping terms to avoid any potential misunderstandings and disputes. The International Chamber of Commerce (ICC), has developed international rules, known as Incoterms, to help with the interpretation of shipping terms around the world. Incoterms have made international trade easier and less risky for everyone involved.

There are 11 Incoterm rules used across 140 countries and are follows:

• EXW – Ex Works
  This term ensures that goods are made available at the place of the seller, so that the buyer incurs the risk and cost of loading and transporting goods to their destination. The seller doesn’t need to clear the goods for export.
• FCA – Free Carrier (Named Place)
  'Free Carrier' refers to the seller, ensuring that the goods are delivered ready for export to the carrier or another person nominated by the seller, at an agreed place that the buyer nominates. Risk passes to the buyer at the agreed place.
• CPT – Carriage Paid To
  This term means that the seller delivers the goods to a carrier or another person nominated by the seller at an agreed place. The goods are considered delivered once the main carrier takes receipt of them.
• DAT – Delivered At Terminal
  This term indicates that the seller must deliver the goods to a nominated port or place. The terminal may be a quay, warehouse, container yard, or road, rail, or air cargo terminal. The seller bears all risk in carrying and unloading the goods to the named port or place of destination.
• DAP – Delivered At Place
  'Delivered at Place' requires that the seller deliver the goods when placed at the disposal of the buyer on the arriving transport ready for unloading.
• DDP – Delivered Duty Paid
  This term indicates that the seller must deliver the goods when they are placed at the disposal of the buyer, cleared for import and ready for unloading at their destination. The seller is responsible for the costs, risks involved in clearing the goods for import and export, pay for carriage, customs and duties.

Carrier & Shipment Terminology

While Incoterms are extremely important, they are not the only terms that are used when it comes to the transportation of goods. There are instances where complications may arise, such as one party needing a change in the destination to one that is not listed in the shipping documentation. There could also be instances where some shipments need to be looked at a little more closely, such as small or urgent deliveries containing goods, as well as the cost of shipping.

• Change of Destination Request
  A Change of Destination (COD) request is simply a piece of documentation asking the carrier to transport the cargo to a different destination than the one that is listed on the Bill of Lading. It's important to understand whether or not the party requesting a Change of Destination actually has the authority to do so before the request goes any further. There are a number of other considerations to be made, as Change of Destination requests have the potential to be complicated and cause problems.
• Air Freight Terms
  One of the more common reasons that air freight is used is for urgent and/or high-value goods that require a little more attention than standard shipments. For goods that are being shipped internationally via air, terms such as 'air waybill' (AWB) are used. Air waybills help provide details about the shipment and also allow it to be tracked, with each party involved in the shipment receiving the same documentation.