What are Incoterms and their importance

• Contents

Incoterms is the abbreviation for International Commercial Terms, which are standardized and defined rules to clarify the risks, costs, and obligations of both the buyer and seller of an international transaction. This standard was created by the International Chamber of Commerce (ICC) in 1936 and is periodically updated to adapt to changes in the international market.

Importance
    Its importance lies in facilitating communication between the parties involved in the negotiation and the calculation of costs related to exports, reducing risks and errors that can occur in the logistics of the export process.

Function of Incoterms

    The function of incoterms is to define and clarify the rights and duties of the exporter and importer. Thus, issues such as where the exporter must deliver the goods, who must pay the cargo insurance, what are the risks involved in the operation, who must pay international freight and even who must pay for bureaucratic formalities are defined through the choice of an incoterm.

What are the incoterms?

    In January 2020 a new version of the list of incoterms was published by the Câmara Internacional de Comércio. There are 11 acronyms:
EXW (Ex Works): Export and total shipping cost are the buyer's responsibility.
FCA (Free Carrier): the exporter is responsible for transporting to the port/airport and for the entire export process and costs.
FAS (Free Alongside Ship): the goods are taken to the ship by the exporter; however, the shipping and international transport operations are the responsibility of the buyer.
FOB (Free On Board): the exporter is responsible for taking the goods to the port and for the shipment, bearing the costs of the port operation.
CPT (Carriage Paid To): the exporter contracts the transport that can be by different modes.
CIP (Carriage And Insurance Paid To): the exporter contracts the transport, which can be by different modes and is responsible for the insurance costs of transporting the goods.
CFR (Cost And Freight): the exporter is responsible for international transport, as well as for its costs.
CIF (Cost Insurance And Freight): in addition to being responsible for transport, the exporter is also the one who takes out insurance against loss or damage to the goods during transport.
DAP (Delivered At Place): the seller is committed to deliver the goods in a previously agreed place.
DPU (Delivered At Place Unloaded): the seller delivers the unloaded goods to a place determined by the buyer, assuming the risks and costs involved (replaced the DAT).
DDP (Delivered Duty Paid): the exporter delivers the goods to the final destination, that is, bears all costs and risks until the goods reach the importer.
    The most used incoterms are EXW, CIF, FOB and FCA. The multimodal incoterms are EXW, FCA, CPT, CIP, DAP, DPU and DDP, while FAS, FOB, CFR, and CIF are those exclusive to the waterway transport mode.
    It is important to highlight that incoterms are not an obligation, but a suggestion that seeks to facilitate communication between exporters and importers around the world.

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