18 August, 2022 |

What is Incoterms?

What are we dealing with when we hear Incoterms? These are specially developed, supranational rules created by the International Chamber of Commerce with its seat in Paris. It is important that the rules drawn up under Incoterms do not have an official legal form and their application is voluntary. However, their nature and commonness mean that they are used all over the world, and their principles are used when trading material goods. The rules are quite clear – they contain general conditions to be adopted during the sale, including a very important obligation to divide in international trade. There are also standards relating to the division of transport and insurance costs, import and export liability, as well as transport regulations. The latest interpretation of Incoterms standards comes from 2020. These voluntary rules allow for easier international trade and set out clear rules during the sale transaction. It is worth knowing the conditions that must be met under Incoterms.

What are Incoterms formulas?

How do they work and why were the Incoterms formulas invented? It is another international initiative to bring international trade closer and also to standardize a certain pattern of behavior. Incoterms are voluntary, but they have gained great popularity in the world and a large number of entrepreneurs follow the established rules. Standardization of good practices when trading in tangible goods has a positive impact on both sides, and also increases trust between entrepreneurs from different regions of the world. As part of Incoterms, 11 rules have been described that define the obligations and responsibilities of both parties during the purchase transaction. Incoterms is another step towards responsible international trade.

Are Incoterms formulas legally regulated? No, it is a voluntary set of rules developed by specialists from the International Chamber of Commerce. It is an organization that tries to provide a certain framework for international trade and trade, and to promote healthy business practices. The principles of good behavior between both sides developed by the international chamber are to work out a compromise profitable for both sides. They cannot be a legal act, as the organization does not have such possibilities, and various local legislation also prevents it. However, voluntarily accepting the Sound Principles should instill greater trust between the parties as well as encourage further trade cooperation.

How do the rules in Incoterms work?

What are the Incoterms rules? They are divided into two groups. The first group consists of common rules such as:

  • Ex Works – the buyer delivers the goods to the buyer’s disposal and it does not have to be on the seller’s premises.
  • Free Carrier – the seller delivers the goods in two ways. At the seller’s premises, they are loaded onto the buyer’s means of transport, outside the seller’s premises, they are delivered and unloaded for the buyer.
  • Carriage Paid To – the seller delivers the goods to the buyer and transfers the risk of goods delivery to him.
  • Carriage and Insurance Paid To – the seller delivers the goods and transfers the risk to the buyer and the carrier ordered by him.
  • Delivered at Place – the seller transfers the risk to the buyer when they are ready for unloading at the place indicated by the buyer.
  • Delivered at Place Unloaded – this is a similar rule to Delivered at Place, but additionally, the seller must unload the cargo.
  • Delivered Duty Paid – the seller delivers the goods to the buyer and leaves it at his disposal at the time of clearance and customs duty calculation.

Do the Incoterms rules also apply to sea and inland transport?

Of course, these are:

  • Free Alongside Ship – the seller delivers the cargo to the buyer and the goods are placed along the side of the ship.
  • Free On Board – the seller delivers the cargo to the buyer on board a ship in the port that has been designated by the buyer.
  • Cost and Freight – this rule also obliges the seller to deliver cargo to the ship. However, he is not obliged to insure the goods. This has to be done by the buyer.
  • Cost Insurance and Freight – This is the reverse rule for Cost and Freight. In this case, the seller not only delivers the goods on board the ship, but is also obliged to take out insurance against the risk of loss or damage. Insurance must also work at the destination port.

What changes have occurred as part of the Incoterms formula?

Are the Incoterms rules changing? Yes, the International Chamber of Commerce constantly updates them and adapts them to the trends in international trade. The last changes come from 2020 – the name of the DAT rule has been changed to DPU. It results from the misnomer Delivered at Terminal, which implied that the terminal is the only place to deliver goods. The Chamber of Commerce also decided to develop the FCA rules. If the buyer needs a certificate that the goods have been loaded onto the road, the seller should provide this type of document.