International trade terms or Incoterms (Incoterms), as a common language in international trade, play a very important role in preventing ambiguities and misunderstandings in trade contracts. These terms are a set of terms and rules that define the duties, responsibilities, costs and risks associated with transporting goods in international trade.
The use of these terms makes the parties to the commercial contract clearly and unambiguously determine their duties and responsibilities in the field of transportation, packaging, insurance and delivery of goods.
International trade terms (Incoterms) are a set of rules and conditions published by the International Chamber of Commerce (ICC) and used in international trade to determine the responsibilities, duties, costs and risks associated with the transportation of goods.
These rules specify the duties and responsibilities of the owners of goods during international transportation in the shortest possible way. Incoterms are used to avoid ambiguities and misunderstandings in commercial contracts and are used as an essential part of international commercial contracts.
By using these rules, the parties to the commercial contract can specify their duties and responsibilities in the field of goods transportation, packaging, loading and unloading of goods, insurance and delivery of goods. These terms are periodically updated by the International Chamber of Commerce according to the different needs and conditions of international trade. The last update happened in 2020, during which the 2010 rules were updated.
An example of Incoterms includes EXW (Ex Works), FOB (Free On Board),
CIF (Cost, Insurance, and Freight), and DDP (Delivered Duty Paid). Each of these terms has a specific meaning for determining responsibilities and duties in the field of transporting goods in international trade.
First of all, we should know that the types of cargo are generally divided into two categories: Negotiable and Non-negotiable.
EXW (Ex Works): The seller delivers the goods to the buyer at the production site or warehouse and is responsible for any costs and risks until the goods are delivered to the buyer.
• FCA (Free Carrier): The seller delivers the goods to a carrier or other transport issuer at his location or at another location agreed in the contract.
• CPT (Carriage Paid To): the seller transports the goods to the agreed destination; But he is responsible for the damage or loss until the moment of delivery to the carrier.
• CIP (Carriage and Insurance Paid To): It is like CPT; But the seller is also responsible for the transportation insurance of the goods to the agreed destination.
DAT (Delivered at Terminal): The seller delivers the goods at the destination terminal. This terminal may be at a port, airport, train station or any other location.
• DAP (Delivered at Place): The seller delivers the goods to the buyer at the agreed destination and is responsible for the costs and risks until the goods are delivered to the buyer.
• DDP (Delivered Duty Paid): The seller delivers the goods to the buyer at the agreed destination and bears all the costs and risks until the goods are delivered to the buyer, even the customs fees and taxes.
• FAS (Free Alongside Ship: The seller delivers the goods to the buyer at the agreed loading port, and all costs and responsibility for loss or damage to the goods from this moment on are shared by the buyer. Negotiable).
Negotiable bills of lading have the ability to be transferred to other persons and the person who holds the bill of lading is actually known as the owner of the bill of lading. Non-negotiable bills of lading are issued in the name of the real owner of the cargo, are endorsed and cannot be transferred to others.
There are different types of bills of lading according to different applications and transportation conditions. In the following, we will get to know some important types of B/L:
The use of Incoterms helps to facilitate and accelerate the process of international trade, as well as to reduce the costs and risks associated with the transportation of goods.
The use of Incoterms contracts has many advantages:
•Simplicity: these terms accurately and clearly specify the duties and responsibilities of the seller and the buyer.
Legal support: Using Incoterms helps sellers and buyers to have reference guidelines in case of legal disputes.
• Risk reduction: By carefully determining the terms of delivery of goods and specifying the duties and responsibilities of each party, the relevant risks are reduced.
• Facilitation of international trade: With detailed instructions on the delivery of goods and related costs, international trade is conducted more reliably and stably.
• Quality assurance: having clear and precise conditions in Incoterms contracts, it is guaranteed that the goods will arrive at the destination on time and with the desired quality.
Incoterms terms are used in international commercial contracts to determine the terms of delivery of goods and the division of responsibilities between the buyer and the seller. The use of these laws causes simplicity, transparency, legal protection, reducing risks, facilitating international trade and guaranteeing the quality of goods at the destination. Incoterms rules help sellers and buyers to have clear instructions in case of legal disputes and to minimize problems that may arise during shipping contracts.
FCA is a rule that means delivery of goods to the carrier at origin (delivery of goods by truck, rail and plane). Considering that the place of delivery is the seller’s country, the loading will be with the buyer; Therefore, the risk point of the loading area is defined. In this rule, the cost of shipping and insurance is with the buyer.
This rule is the same as the former C&F. Incoterms CRF is for sea transportation, and the seller’s responsibility will end when the goods pass over the ship’s rail. In this rule, the cost of insurance and contract is with the buyer, and the cost of transportation and contract is with the seller.
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