Using the correct Incoterm (FCA, FOB, CIF) is an essential part of any international trade contract. When goods are shipped in international markets the International Chamber of Commerce (ICC) Incoterm defines clearly for both the seller and the buyer which party is responsible for the costs, risks, delivery and obligations for the goods during their transit.
Here are some hints and tips that might prove useful to you when considering shipping your goods internationally and using Incoterms® 2010.
1. Remember that the Incoterms SHOULD NOT be considered as the prime contract of sale.
Incoterms are there to indicate when and where the responsibilities/costs/risks and delivery obligations start and finish for both the buyer and seller.
2. Make sure that you agree with your buyer and include in the contract of sale ANYTHING involving logistics that is not covered fully by the Incoterms.
There may be a special arrangement that the seller has with the buyer that is not covered by a specific Incoterm, e.g. Giving assistance by loading goods onto a buyer’s nominated freight carrier under Ex-Works. Ex-Works states that it is the responsibility of the buyer to load at seller’s premises and not the seller.
3. Consider the right freighter for the right goods.
Airfreight would be impractical when considering a cargo of wheat or coal. Mistakes have been mad and have been costly.
4. Consider terms appropriate to the transport required. (multi modal/maritime).
FAS, FOB, CIF, and CFR should only be used for maritime transport.
5. Decide and agree who will organise transport.
Make sure there is agreement and not assumption.
6. Decide who will organise insurance (if required).
This is usually organised by the seller on behalf of the buyer.
7. Consider local customs and practicalities at destination.
You may have excellent facilities to load up and move products at the seller’s end but things could be much different at the destination where such facilities could be wanting.
8. Consult guidance notes.
Always consult the notes given in the Incoterms® 2010 booklet issued by the International Chamber of Commerce.
9. Specify the ‘place’ as precisely as possible. Point, Place, Port.
Don’t be vague – Indicating a place only is not enough
e.g. ‘Portland’ in US – there are 11 of them in different US states.
10. Make sure you incorporate and specify Incoterms® 2010 in your contracts of sale.
11. Ensure you incorporate and specify your stated Incoterms® 2010 in your distributor contracts.
Keith W. Jones MIEx founder of the Link Me Group of companies has vast knowledge in international business. With over 25 years' experience behind him, heading up subsidiaries of multibillion dollar…