TT Talk - Trade ‘Esperanto’ still requires understanding

Supply chain management and contracts of carriage are, inevitably, derivations of sale contracts. The interface between the different types of contracts and the parties involved can be critical to keep things moving smoothly and resolve misunderstandings.

Incoterms® are important!

Learning a foreign language involves a mixture of skills; it's a lot more than just words and syntax - it is vital to have an understanding of the culture, context and nuances involved behind communication. Many aspects of international trade can be similarly fraught and complex, which is precisely why 'Incoterms®' (

In

termational

Co

mmercial

T

erms) were first launched back in 1936.

The terms have been developed and maintained by experts and practitioners brought together by the

ICC

(International Chamber of Commerce), and have become the standard international business terms defining the roles of sellers and buyers within the sale process, particularly relating to the transfer of risks as goods proceed from origin to destination. The latest (eighth) and current version was issued in 2010 and became effective at the beginning of 2011. Although integral to international sales agreements, certain terms are equally valid for domestic and 'trade bloc' use.

What are Incoterms®?

Incoterms® provide a series of three-letter trade terms describing common sales practices, intended to communicate clearly the tasks, costs and risks associated with the transportation and delivery of goods. They are accepted worldwide for the consistent interpretation of the most commonly required processes in international trade. They are designed to reduce - or eliminate altogether - uncertainties arising from different practices around the globe.

The current publication defines 11 terms, which are subdivided into two categories based on the delivery method, reflecting the multimodal options. Seven of the rules apply to any mode of transport, with the other four solely applicable to sales that involve transportation by water (sea or inland waterway). The terms ensure that both the buyer and seller reach agreement as to:

  • who is responsible for the cost of transporting the goods, including insurance, taxes and duties (whether export or import);
  • where the goods can be considered as delivered, linking to the requirement to make payment; and
  • who is at risk for anything that might befall the goods at each step during transportation.

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