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INCOTERMS

International business mechanism series


Euromed Marseille Ecole de Management Ernesto TAPIA MOORE

INCOTERMS defined
Meaning of INCOTERMS? Objective? Utility? Purpose? Legal value? Replaceable? Modifiable? Why worry?

Meaning of INCOTERM ?
IN

= international CO = commerce TERM = term Terms used in international trade:


By

most actors In most circumstances

Objective?

Provide universal terms of contract, specific to each transportation mode, pertaining to the physical point of transfer of costs and obligations of one party to the contract of international sale of goods to the other. Increase the efficiency of international sales of goods contract negotiation in terms of:

Time Complexity Comprehension

Utility?

Accelerate the contract negotiation process. Avoid errors of interpretation arising from complex delivery clauses. Provides in a 3-letter term the equivalent of up to 30 contract clauses. Is understood universally. Is the reference used systematically by all international business professionals.

Purpose?

Determine the physical point of transfer of contractual obligations EXCLUDING THE TRANSFER OF PROPERTY. Determine obligations regarding the transfer of information, documents, goods. Determine obligations concerning the transfer of warehousing, transportation, handling, freight forwarding, administration, customs, customs clearance costs and liabilities.

Legal value?

INCOTERMS are used under Lex contractus principle. INCOTERMS are not law beyond the contract for the international sale of goods. INCOTERMS are produced by the International Chamber of Commerce, a private body. Some countries have adopted INCOTERMS in their national law. Such is the case of the USA and the UCC INCOTERMS.

Replaceable?

INCOTERMS may be replaced by:

Newer INCOTERMS (however, older ones do not cease to exists). Obligatory dispositions stemming from the choice of applicable law. Custom delivery clauses.

Modifiable?

The chosen INCOTERM may be modified during the contract negotiation in order to fit the needs of the contract. INCOTERMS are above all models, not a form of supranational law. As with all contractual clauses, INCOTERMS cannot be modified after conclusion of the contract, unless otherwise provided for in the contract itself.

Why worry?

INCOTERMS are the worldwide reference international business professionals use. INCOTERMS provide a common language, allowing unhindered contract implementation. INCOTERMS are updated regularly in order to better integrate the evolution of international means of transportation and communication, as well as administrative procedures. INCOTERMS are lex mercatoria.

The list of INCOTERMS


EXW = Ex works FCA = Free carrier FAS = Free alongside ship FOB = Free on board CFR = Cost and freight CPT = Cost paid to CIF = Cost insurance freight CIP = Cost insurance paid to

DAF = Delivered at frontier DES = Delivered ex ship DEQ = Delivered ex quay DDU = Delivered duty unpaid DDP = Delivered duty paid.

Some questions, for a better understanding

Transportation:

Customs:

Who is liable for all or part of it? Who pays for all or part of it?
Who is liable for establishing or having them established? Who provides the information for them? Who covers the cost of establishing or having them established Which documents are to be established by whom?

Who is liable? Who covers the cost?


Who is liable for all or part of it? Who pays for all or part of it? What is covered? What value is covered? Who is liable for all or part of it? Who pays for all or part of it?

Customs Clearance:

Documents:

Insurance:

Point of transfer: Ocean Freight

Point of transfer: Land Freight

Point of transfer: Air Freight