Incoterms

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International Commercial Terms, or Incoterms, first published in 1936 by the International Chamber of Commerce to promote standardized terminology for international trade.
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Definition

International Commercial Terms (Incoterms) are standardized terms published by the International Chamber of Commerce (ICC) in 1936 to clarify the responsibilities of buyers and sellers in international transactions. These terms, which are updated periodically, provide clear rules for shipping, risk, and responsibilities between buyers and sellers in international trade contracts. The most recent version was updated in 2020.

Examples

  • EXW (Ex Works): The seller makes the goods available at their premises, and the buyer is responsible for all costs and risks involved in transporting the goods to the final destination.
  • FOB (Free On Board): The seller delivers goods on board a ship chosen by the buyer. The risk transfers to the buyer once the goods are on board.
  • CIF (Cost, Insurance, and Freight): The seller covers the cost, insurance, and freight to bring the goods to the port of destination. Risk transfers to the buyer once the goods are on board the ship at the port of shipment.
  • DAP (Delivered at Place): The seller delivers when the goods are placed at the disposal of the buyer at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.

Frequently Asked Questions

  1. What are Incoterms used for?

    • Incoterms are used to define the responsibilities of buyers and sellers in international transactions, mainly focusing on shipping, risks, and costs.

  2. Who publishes Incoterms?

    • The International Chamber of Commerce (ICC) publishes Incoterms.

  3. How often are Incoterms updated?

    • Incoterms are updated periodically to reflect the evolving practices in international trade and shipping. The most recent update was in 2020.

  4. Do Incoterms cover all aspects of a trade agreement?

    • No, Incoterms primarily address the delivery of goods, the transfer of risks, and the allocation of costs between the buyer and seller. Other aspects like payment terms and warranties are covered separately.

  5. How many Incoterms are there?

    • As of the 2020 update, there are 11 Incoterms.
  • Bill of Lading: A document issued by a carrier that details a shipment of merchandise and gives title of that shipment to a specified party.
  • Freight Forwarder: A person or company that arranges the transport of goods on behalf of exporters/importers.
  • Letter of Credit: A letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount.
  • Tariff: A tax or duty to be paid on a particular class of imports or exports.

Online Resources

Suggested Books for Further Studies

  • “Incoterms® 2020 by the International Chamber of Commerce (ICC)” - by ICC
  • “Global Supply Chain Law and Compliance: A Practical Guide” - by Robert J.n. Mehta
  • “Understanding International Trade: Theory and Policy” - by Paul Krugman and Maurice Obstfeld

Fundamentals of Incoterms: International Business Basics Quiz

### What do Incoterms primarily define in international trade agreements? - [x] Responsibilities of buyers and sellers for shipping and risk. - [ ] Intellectual property rights. - [ ] Pricing models. - [ ] Labor regulations. > **Explanation:** Incoterms primarily define the responsibilities of buyers and sellers regarding the shipping, risk, and costs of goods in international transactions. ### The term EXW (Ex Works) indicates that the seller provides the goods at: - [x] The seller's premises. - [ ] The buyer's warehouse. - [ ] A port of destination. - [ ] A neutral location. > **Explanation:** Under EXW, the seller makes goods available at their premises, and the buyer is responsible for transportation costs and risks. ### Which term includes the cost, insurance, and freight up to the port of destination? - [ ] EXW (Ex Works) - [ ] FOB (Free On Board) - [x] CIF (Cost, Insurance, and Freight) - [ ] DDP (Delivered Duty Paid) > **Explanation:** CIF includes cost, insurance, and freight to the port of destination. The seller covers these expenses. ### Under which Incoterm does the seller bear all risks until goods are placed at the buyer's disposal at a named place? - [ ] EXW (Ex Works) - [x] DAP (Delivered at Place) - [ ] FOB (Free On Board) - [ ] FCA (Free Carrier) > **Explanation:** Under DAP, the seller bears all risks associated with the transportation until the goods are delivered to the named place at the buyer's disposal. ### Which organization publishes and updates Incoterms? - [ ] The World Trade Organization (WTO) - [x] The International Chamber of Commerce (ICC) - [ ] The United Nations (UN) - [ ] The International Monetary Fund (IMF) > **Explanation:** The International Chamber of Commerce (ICC) publishes and updates Incoterms to facilitate international trade. ### How many Incoterms are listed in the 2020 update? - [ ] 5 - [ ] 7 - [x] 11 - [ ] 15 > **Explanation:** As of the 2020 update, there are 11 Incoterms. ### Who is responsible for obtaining export clearance under the FCA (Free Carrier) Incoterm? - [x] The seller - [ ] The buyer - [ ] The carrier - [ ] A freight forwarder > **Explanation:** Under the FCA term, the seller is responsible for delivering the goods to the carrier and obtaining export clearance. ### Which Incoterm specifically indicates that the seller needs to unload the goods at the delivery destination? - [ ] FAS (Free Alongside Ship) - [x] DPU (Delivered at Place Unloaded) - [ ] FOB (Free On Board) - [ ] CIF (Cost, Insurance, and Freight) > **Explanation:** Under DPU, Delivered at Place Unloaded, the seller is responsible for unloading the goods at the destination. ### What aspect of international trade does FOB (Free On Board) primarily address? - [ ] Payment terms - [x] Shipping responsibility - [ ] Import duties - [ ] Product warranties > **Explanation:** FOB primarily addresses the shipping responsibility, indicating that the seller delivers goods on board a vessel for shipment. ### Which Incoterm requires the seller to cover all costs up to delivering the goods to a port, but not necessarily insurance? - [ ] CIF (Cost, Insurance, and Freight) - [x] CPT (Carriage Paid To) - [ ] EXW (Ex Works) - [ ] DDP (Delivered Duty Paid) > **Explanation:** CPT (Carriage Paid To) requires the seller to cover all costs up to delivering the goods to the nominated destination but does not include insurance.

Thank you for exploring the intricacies of Incoterms and testing your knowledge with our comprehensive quiz. Understanding these terms is crucial for success in international trade!

Wednesday, August 7, 2024
Increasing Costs
Incorporeal Property
Free Alongside Ship (FAS) January 1, 1
Bill of Lading (B/L) January 1, 1
Cargo January 1, 1
Cost and Freight (C&F) January 1, 1
Free on Board (FOB) January 1, 1
Freight Forwarder January 1, 1
Air Freight January 1, 1
Back Haul January 1, 1
Bonded Goods January 1, 1
CIF (Cost, Insurance, and Freight) January 1, 1

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