At this time when Spanish companies are seeing international trade as a good escape route from the country’s economic situation, it is more necessary than ever for them to know the tools with which they are going to have to play on the international board.
In this sense, one of the most important things that must be known to correctly carry out any international purchase and sale operation are the Incoterms (International Commercial Terms).
What are Incoterms and what are they for?
The Incoterms establish the rules on which international purchase and sale operations rest. These are internationally accepted standards and are expressed by three letters.
Its birth occurs in the International Chamber of Commerce of Paris (ICC) in 1936. Since that date they have undergone numerous modifications in order to adapt to the changes suffered by International Trade in its development between states. These changes occur in 1945, 1953, 1967, 1976, 1980, 1990, 2000 and the last one in force today in 2010.
We can say that the Incoterms regulate four fundamental aspects that participate in all international purchase and sale operations, clearly establishing the rights and obligations of the parties.
- They regulate where the merchandise is delivered.
- They set the costs to be borne by each of the parties.
- They establish at what time and place the transfer of responsibility for the goods from the buyer and the seller occurs.
- They regulate who should manage the documentary procedures.
What are the Incoterms in their 2010 version and what do they indicate?
We are only going to list and briefly describe them, as we will spend more time defining them individually and explaining them with examples in future articles.
Group E Incoterms
Ex Works (EXW) – One of the most used today. The seller makes the goods available to the buyer at his premises.
Group F Incoterms
Free Carrier (FCA) – The product is delivered to the carrier at the agreed place.
Free Alongside the Ship (FAS) – Merchandise is delivered alongside the ship (unloaded). Exclusive for maritime transport.
Free On Board (FOB) – The merchandise is delivered loaded on the ship. Exclusive for maritime transport. Currently widely used.
Group C Incoterms
Cost and Freight (CFR) – The seller must be responsible for getting the merchandise to the agreed port, paying the expenses, but his responsibility ends once the main transport is loaded. Exclusively maritime.
Cost Insurance and Freight (CIF) – This is very similar to CFR except that the seller will have to pay for the insurance.
Carrier Paid To (CPT) – The seller must deliver the merchandise to a previously agreed point, bearing the costs, but its responsibility ends at the time it is delivered to the main carrier. Multimodal incoterm.
Carrier Insurance Paid to (CIP) – Similar to CPT except that the seller must pay the costs of insurance of the merchandise. It is a multimodal Incoterm.
Group D Incoterms
Delivery At Terminal (DAT) – The seller must make the merchandise available to the buyer at the destination terminal.
Delivery At Point (DAP) – The seller delivers the merchandise at an agreed location.
Delivery Duty Paid (DDP) – The seller delivers the merchandise at an agreed point with customs procedures and customs duties paid.
Aspects that we should know about the use of Incoterms
Whenever we use an Incoterm, we must include the version to which we are referring, because old versions are used in certain areas. However, it is advisable to always use the latest version and in the event that one of the parties does not specify which version it is referring to, the appropriate thing to do is to demand that it clarify it. This can avoid problems in the future.
Actually, the structure with which we will always quote the Incoterm is the following:
Price – Incoterm – Location – Version
Let’s see an example below:
- 10.990 € EXW MADRID ICC 2010
With this we are telling the buyer that the merchandise has a price of 10,990 euros in Ex Works conditions in my factory in Madrid. We also say that the Incoterm Ex Works will be understood as established in the 2010 version.
We already see that it is very simple to cite them correctly and that if we all understand how to do it we can avoid many misunderstandings.
We must consider that their use is not an obligation, but that they are adopted at the voluntary desire of the parties given the ease that known and regulated rules in different regions and languages suppose.
It is possible to carry out an international sale-purchase agreement in which we complement or delimit some aspects of the Incoterms that we are using. Only the agreement between the parties will be necessary.
2020 update
The new 2020 Incoterms are now available, and as usual, we have compiled a guide that you can download for free below: Incoterms 2020, we collect everything in this article.