INCOTERMS, short for “International Commercial Terms”, are a set of rules that establish the terms and conditions for the delivery of goods between buyers and sellers in international trade transactions. ICC, the body responsible for creating and maintaining Incoterms, is represented in more than 100 countries, demonstrating their worldwide popularity. tool
Importance of INCOTERMS
Incoterms provide a common language that buyers and sellers can refer to when it comes to shipping goods. The terms are designed to make everyone aware of their respective obligations, eliminating potential confusion or conflicts. Incoterms are important to international businesses because they make global deals less complicated and reduce the chances of financial and legal problems. Incoterms clarify how goods will be transported and transferred, who is responsible for transportation and insurance costs, and when obligations for the goods pass from the seller to the buyer.
Incoterms are a useful tool for reducing costs and increasing revenues, as they ensure that obligations and risks are shared equitably among the parties involved in the transaction. In addition, the use of Incoterms can facilitate international trade activities to make them faster and more efficient, giving companies an advantage in a global marketplace. Incoterms are an essential component for companies involved in international trade. Incoterms can reduce the potential for disputes, misunderstandings and economic and legal repercussions, while optimizing the efficiency and benefits of overseas trade agreements.
Brief history of INCOTERMS
INCOTERMS first emerged in 1921 as a result of a meeting of the International Chamber of Commerce (ICC) in Paris. At that time, international trade was expanding rapidly and guidance was needed to help standardize international trade practices.
The first set of INCOTERMS, known as the “Incoterms 1923”, included only thirteen terms and focused mainly on delivery terms and risk transfer. The terms included FAS (Free Alongside Ship), FOB (Free on Board), CIF (Cost, Insurance and Freight), among others.
In 1936 the second edition of INCOTERMS was published, called “Incoterms 1936”. This version contains many changes, including the elimination of some terms and the addition of new ones, such as DDP (Delivered Duty Paid).
Following the publication of the INCOTERMS in 1936, the next major revision came in 1957 with “Incoterms 1957”. It increased the information regarding delivery of goods and payment terms, as well as introducing a new term called FOT (Free on Truck) which indicated when goods were to be delivered by truck.
In 1967, a revised version of the INCOTERMS was published, called “Incoterms 1967”. This edition included significant alterations, such as the deletion of FOB Airport and its replacement by FCA (Free Carrier), which can be used for all forms of transport.
In 1980, a major modification was made with the publication of “Incoterms 1980”. This version included noteworthy modifications, such as the addition of DAT (Delivered at Terminal), which refers to the delivery of goods to a terminal designated by the buyer, and the elimination of FOB, CFR and CIF for intermodal transportation.
In 1990 the “Incoterms 1990” edition was published, which included new terms such as DAF (Delivered At Frontier), DES (Delivered Ex Ship), DEQ (Delivered Ex Quay), DDU (Delivery Duty Unpaid) and DDP (Delivery Duty Paid). In addition, the terms DES (Delivered Ex Ship) and DEQ (Delivered Ex Quay) were eliminated.
In 2000, the INCOTERMS were renamed “Incoterms 2000”. This version eliminated the terms DAF, DES and DEQ and included DAP (Delivered at Place) and DAT (Delivered at Terminal).
The 2010 version of the INCOTERMS introduced substantial modifications, such as the deletion of DDU and DDP, as well as the addition of two new terms: DAT (Delivered at Terminal) and DAP (Delivered at Place).
In 2020, the INCOTERMS underwent an update. Now known as “Incoterms 2020” this update included modifications to its format and organization, as well as a new term – DPU (Delivered At Place Unloaded) – which refers to the delivery of products to a place chosen by the buyer, but without unloading them from the transport vehicle.
Since then, INCOTERMS has been developed and updated several times to reflect changes in international trade practices and transportation technology. INCOTERMS is now recognized and used worldwide as a guide for international trade transactions. By establishing clear terms and conditions for the delivery of goods, INCOTERMS helps reduce the risk of misunderstandings and disputes between buyers and sellers and ultimately facilitates international trade. tool
Although INCOTERMS have great benefits for both parties, even with all the modifications and adaptations they have undergone since their creation, they still have areas of opportunity that can be considered for their next updates. tool
AREAS OF OPPORTUNITY
Improve the efficiency of supply chains: The use of Incoterms can improve the efficiency of supply chains by making delivery and shipping terms consistent. This can reduce processing time and costs, thereby increasing companies’ profitability. However, it is essential that companies also focus on employing more efficient technologies and procedures to ensure that their supply chain is as resourceful as possible.tool
Using technology, Incoterms can improve visibility and efficiency within the supply chain. For example, systems that monitor and track shipments can ensure that goods are shipped in accordance with the terms of Incoterms. In addition, digital tools can automate paperwork and completion of tasks, resulting in less time wasted and fewer mistakes made. tool
Incoterms can promote better understanding and openness in international trade. By leveling the playing field, Incoterms can minimize the possibility of misunderstandings and disputes among those involved in the transaction. Nevertheless, more education and instruction is needed to ensure that everyone involved in a deal understands the terms and implications of Incoterms. tool
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