INCOTERMS® in a Global Economy

Posted on: March 30th, 2012 by admin
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For hundreds of years, merchant vessels have been sailing to and from all parts of the world. It was a risky business, though, as ships would often encounter storms or something worse: pirates! In the modern global economy, international trade rules should protect the buyer and seller from risk: the damage or loss of goods in transit. In the old days it was difficult to enter into international sales contracts because practices varied from country to country, and this often resulted in complex litigation when things went wrong.

To standardise trade negotiations, the International Chamber of Commerce (ICC) compiled the most widely used practices to define which part of the transport of the goods would be covered by which party – the buyer or the seller. The first set of rules, called INCOTERMS (INternational COmmercial TERMS), was published in 1936 and most recently, the eighth revision came into effect in January 2011. To make sure that the terms used are interpreted in the same way, a contract or quotation should now make reference to “INCOTERMS® 2010.”

INCOTERMS® 2010 consists of the following eleven acronyms: EXW, CPT, CIP, DAT, DAP, DDP, FCA, FAS, FOB, CFR and CIF. Wikipedia provides an excellent summary of the meanings, which range from EXW, short for “Ex Works,” where the seller makes the goods available at his premises, to DDP which stands for “Delivered Duty Paid,” where the seller undertakes maximum obligation and provides a door-to-door service.

INCOTERMS is a registered trademark of the ICC.
INCOTERMS is a registered trademark of the ICC.

The use of INCOTERMS is not mandatory and can be adapted to the specific contract. However, they do serve as an excellent starting point for negotiations since the rules are universally understood. In the final agreement it must be clear to the parties involved who is responsible for what. INCOTERMS® 2010 contains a number of important of changes, such as a reduction in the number of terms from 13 to 11. Some of the major changes relate to the increased use of electronic communication.

CapeRay has suppliers located all over the world and we are also gearing up to send our own products overseas. We have a trusted network of couriers and agents to make sure the goods travel hassle-free, and it’s reassuring to know that the INCOTERMS will be providing us with a framework to guarantee the delivery of the Pandia and the PantoScanner.

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