Incoterms

Incoterms (International Commercial Terms) are internationally recognized rules for the interpretation of international sales contracts. They provide a uniform set of rules for determining the responsibilities of buyers and sellers for various aspects of the transaction, including:

1. Delivery and Risk Transfer:

• Ex-works: The seller’s responsibility ends at the point of loading the goods onto a carrier at the seller’s premises.
• Free on board (FOB): The seller’s responsibility ends when the goods are loaded onto a carrier at the named port.
• Cost, insurance, and freight (CIF): The seller is responsible for costs, insurance, and freight charges up to the named port.
• Free on destination (FOD): The seller’s responsibility ends when the goods are unloaded at the buyer’s premises.

2. Payment:

• Cash in advance: Payment required before the goods are shipped.
• Open account: Payment due upon receipt of the goods.
• Letters of credit: A bank guarantee for payment.

3. Documents:

• Commercial invoice: A document detailing the sale and payment terms.
• Bill of lading: A document issued by the carrier confirming the shipment of goods.
• Certificate of origin: A document verifying the origin of the goods.

4. Dispute Resolution:

• Arbitration: Dispute resolution through neutral arbitration.
• Mediation: Dispute resolution through neutral mediation.

5. Governing Law:

• Uniform Commercial Code (UCC): Applies in the United States.
• International Convention for the Sale of Goods (CISG): Applies in many other countries.

Key Benefits:

• Clarity and certainty: Incoterms provide a common set of rules, reducing ambiguity and misunderstandings.
• Consistency: Incoterms ensure consistency in international trade transactions.
• Protection of interests: They protect the interests of buyers and sellers by clearly defining responsibilities.
• Uniformity: Incoterms promote uniformity in international trade practices.

Examples:

• “Ex-works London” means that the seller’s responsibility ends when the goods are loaded onto a ship in London.
• “CIF New York” means that the seller is responsible for costs, insurance, and freight charges up to New York.

Note: Incoterms are typically chosen by the seller and agreed to by the buyer in