Incoterms are a set of rules published by the International Chamber of Commerce (ICC). They are designed to clearly communicate how tasks, costs, and risks, which are associated with the international transports of goods, are allocated between sellers and buyers. It is important to have clarity on where responsibility and risk transfers, before a transaction takes place. Otherwise, there is a scramble to find out, after an incident takes place.
The latest revision of Incoterms was published in 2020. Supply chain changes such as Brexit, have also increased the focus on defining where responsibilities lie with regard to cross border trade – particularly as it relates to importer and exporter responsibilities.
There are 11 categories of Incoterm – each with their own definitions (available from Incoterms 2020 – ICC – International Chamber of Commerce).
Some key considerations, when it comes to customs responsibilities;
– Export responsibilities;
- EXW – the seller is responsible for providing documentation to facilitate the export process, but the buyer is responsible for the export process and subsequent import processes.
- The seller is responsible for the export process with all other Incoterms
– Import responsibilities;
- DDP – the seller is responsible for completing all import formalities, including duties and fees. This is commonly used for eCommerce shipments, so that the receiver is not hit with additional charges on receipt of the goods.
- The buyer is responsible for import formalities with all other incoterms
Variations to these Incoterms can be agreed and documented between the parties. To be effective, the Incoterms should also be specific about the place where responsibility changes. For example, if it is DAP (Delivered at Place), then the place should also be listed with the Incoterm.
It is important for commercial, logistics and finance teams to be aware and aligned on what is contained in all commercial contracts. These three letter acronyms have an important commercial and supply chain purpose.
Supply Chain Enabled