What are international commercial terms (incoterms)?

When you first hear of an incoterm, it may bring back unpleasant memories of times where people have used words such as ‘emetic’, ‘vacillate’ and ‘halycon’ in a sentence and you sagely nodded your head in knowing agreement. You just agreed to blue murder, for all you know.

Incoterms (international commercial terms) are internationally accepted definitions and rules of interpretation for most common commercial terms. Essentially, they are the shorthand means of agreeing who is responsible for the costs and risks associated with the international sale of goods. With one simple three worded acronym, you can confirm when risk in goods passes from the supplier to the recipient and who is responsible for transporting, insuring and paying duties on goods. So if you’re in the business of selling goods online and you have a growing base of international customers, you should familiarise yourself with this new language.

Examples of Incoterms

DDP (delivered duty paid). DDP describes a situation where the seller is responsible for all the costs relating to transporting the goods to the named place in the country of purchase (including import duties and taxes). The seller is not responsible for unloading.

FCA (free carrier, named place of delivery). The seller delivers the goods, cleared for export, at a named place. This can be to a carrier nominated by the buyer or to another party nominated by the buyer.

How do they apply to me?

Incoterms are important where you either buy or sell products internationally. Say you’re a bespoke Canadian maple-syrup importer in Australia, catering to all those Australians just aren’t happy to accept cheap substitutes. You source the best from one supplier in Canada and need monthly shipments to maintain your stock and meet demand.

You should buy your maple-syrup DDP (delivered duty paid). This means that the Canadian supplier has to pay all costs and cover all risks involved in getting the maple-syrup to your door in Australia. The supplier must unload and clear the goods for import and pay all duties, taxes and charges in the country of import. If a shipment feeds the fish in transit, it’s too bad for the Canadian supplier – they have to find another way to get the shipment to you. A Supplier Agreement may also apply to you.

Tips on Using Incoterms

• name a specific delivery point. All incoterms require you to specify a point of delivery; just noting ‘Australia’ could mean your precious goods could end up in Darwin. What use would a shipment of jackets have up there?
• understand where the risk lies. For the majority of incoterms, the end destination you name is where the risk passes and delivery takes place. However note that for CPT, CIP, CFR and CIF, where the risk passes and where delivery occurs is different, so both should be specified.
• which set of incoterms should you use? Incoterms are updated sporadically so define the edition you are using. State ‘[Incoterm, delivery point] Incoterms® 2010’.
• Incoterms state where/when risk passes. Incoterms don’t specify title – you need to do this.
• Incoterms can’t be used in place of a contract. You still need to agree on price, consequences of breach, what the goods are, termination rights and jurisdiction etc.  

Conclusion

LegalVision has a team of great international contract lawyers who can assist you. Please call our office on 1300 544 755 and our Client Care team will happily provide you with an obligation-free consultation and a fixed-fee quote.