Incoterms, is the contraction of the name “international commercial terms” and indicates the international nomenclature used in the field of imports and exports, valid universally and that uniquely defines the rights and duties of all parties involved in an import operation.
The incoterms to uniquely define, and without falling into error, the rights and duties of the parties involved in the transfer of goods from one country to another, namely:
- the breakdown of transport costs,
- Insurance coverage
- The Customs
The definition of these terms is very important because it establishes when the ownership of the goods passes from one subject to another and the respective responsibilities for any losses, damages and costs of the goods in question.
What are the subjects to which Incoterms refer?
In the transport of each material between two different countries, different subjects are usually involved (from three to five):
- Seller or Exporter who sells the goods and produces the documents necessary for the export process.
- Buyer or Importer who usually has to produce documents for import.
- Customs of departure
- Departure port or airport
- Carrier or Freight Forwarder who moves goods from one location to another and produces documents for transport.
- Means of transport:
- Freight Insurance Company
- Port or airport of arrival
- Customs office of the country of arrival
In the purchase and/or sale negotiations it is not enough to agree on the price of the goods, but it is also necessary to be clear “who” must take care of the transport and “who” must bear the related costs.
Through INCOTERMS it is therefore possible to establish from the beginning and without the possibility of error who must do what and codify the responsibilities of the parties involved during the international transaction. Consequently, when purchasing from abroad and requesting a quote from a supplier, you must specify which Incoterm you intend to use. The cost of goods will vary significantly (even by 50%) depending on the Incoterm you choose.
What are the Incoterms (latest version 2020)
Over time the Incoterms have undergone several changes, the most recent version that we report here is that of 2020.
Each Incoterms has two components: a three-letter code and the name of a city. The Incoterms rules currently in force are 11, divided into two groups according to the means of transport for which they have been formulated:
- Applicable to any type of transport:
EXW – Ex Works (named place of delivery)
FCA – Free Carrier (named place of delivery)
CPT – Carriage Paid To (named place of destination)
CIP – Carriage and Insurance Paid to (named place of destination)
DPU – Delivered At Place Unloaded (named place of destination)
DAP – Delivered At Place (named place of destination)
DDP – Delivered Duty Paid (named place of destination)
- Applicable to sea/water transport:
FAS – Free Alongside Ship (named port of shipment)
FOB – Free on Board (named port of shipment)
CFR – Cost and Freight (named port of destination)
CIF – Cost, Insurance & Freight (named port of destination)
When you sign a contract with a supplier, you must clearly indicate which of these incoterms will be used in the international transaction so as not to incur legal problems. Because the following factors will be clearly determined from the outset:
- Delivery Location
- Means of transport
- timing of the transfer of risk from seller to buyer;
- allocation of transport, insurance and handling costs;
- responsibility for obtaining export/import documents.
Incoterms and DPU
In 2020 as we mentioned earlier there were some significant changes to the Incoterms they remained 11 but the DAT (Delivered At Terminal) was changed to DPU (Delivered At Place Unloaded).
In this way we want to indicate that the destination of the goods does not have to be at a terminal but can be anywhere and that in this case the seller must take responsibility for checking that the goods can be unloaded.
The Incoterms 2020 also increased the level of CIP insurance coverage from level C to level A and introduced the Obligations.
The Obligations of Incoterms
In 2020, a list of 10 obligations was also introduced for
- A Seller
- B Buyer
A1: Generalize them or prepare the required documents
A2: Delivery and taking over
A3: Transfer of risk
A6: Delivery document and transport document
A7: Export customs clearance and import customs clearance
A8: Checking, packing and marking
A9: Allocation, allocation and division of costs
Notifications and warnings
Obligations of the buyer
B1: Generalize them or prepare the required documents
B2: Delivery and taking over
B3:Transfer of risks.
B6: Delivery document and transport document
B7: Export customs clearance and import customs clearance
B8: Checking, packing and marking
B9: Allocation, allocation and division of costs
B10: Notifications and warnings
How to manage Incoterms without incurring in mistakes
If you want to import goods from abroad, it is good that you know what type of contract you are signing, know exactly what your duties are and what those of your seller are.
Managing these types of processes well is not easy if you have no experience, also because checking the documents needed to pass customs in Europe can be very complex, because these vary according to the type of product and its characteristics.
If you want to import products from China and avoid any kind of problem, contact the number one partner in Italy: Yakkyofy.
With over 10 years of experience in importing products from China, the Yakkyofy team is able to help you in any situation.
We help you to search for your products, negotiate with the supplier the price, production time and the minimum order quantity.
We test the quality of the goods and check all the documents necessary for importing the goods.
We take care of the customs clearance and deliver everything directly to a domicile chosen by you.
We are also able to ship goods from China directly to one of the Amazon FBA warehouses, ensuring that packaging and labels comply with Amazon standards.
In short, with Yakkyofy you simply have to choose your product that we will take care of everything else: sourcing, shipping, customs clearance and home delivery.