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Incoterms: The key document in international distribution

International Commercial Terms — is a key document for any participant in international distribution. It establishes clear rules and conditions for the delivery of goods from one country to another, defining the roles and responsibilities of the seller and the buyer at each stage of the entire international transportation process. It helps to create the basis for reliable and efficient international trade operations, ensuring trust between the parties and contributing to the development of the economy as a whole.

The main purpose of Incoterms is to ensure standardization of delivery terms and unification of terminology used in international trade. This makes the process of concluding and executing international contracts more transparent and efficient, minimizes possible conflicts between the parties and promotes the development of global trade.

Incoterms includes 11 main terms that describe different stages of delivery of goods. The main ones include:

  • EXW (Ex Works) - seller delivers goods by his own efforts at his own location. Buyer bears all costs and risks after taking delivery of goods from seller.
  • FCA (Free Carrier) - seller delivers goods to carrier chosen by buyer at the place specified by buyer.
  • CPT (Carriage Paid To) - seller organizes transportation of goods to specified destination, but is not responsible for the risks after the goods are transferred to the carrier.
  • CIP (Carriage and Insurance Paid To) - similar to CPT, but with additional insurance for goods.
  • DAP (Delivered at Place) - seller delivers goods to specified destination, does not clear goods and does not unload them.
  • DPU (Delivered at Place Unloaded) - similar to DAP, but seller also unloads goods at destination.
  • DDP (Delivered Duty Paid) - seller delivers goods and bears all costs, including customs duties and taxes, to the destination.

These are just a few of main terms of Incoterms, and each of them has its own specific conditions and responsibilities for seller and buyer. It is important to keep in mind that Incoterms rules must be included in an international contract and are determined by the parties entering into agreement.

Thanks to Incoterms, international trade becomes more predictable and transparent. Understanding and choosing the right Incoterms terms helps to avoid misunderstandings and conflicts between the parties.

"Incoterms is the foundation of successful international logistics. This system helps to define the roles and responsibilities of the parties in international trade transactions, reduces risks and helps to increase the efficiency of supplying goods around the world. Without the correct use of Incoterms, delays, misunderstandings, or additional costs can occur. The success of any international logistics operation depends on it," - comments Svitlana Shypil, Road Network East Director at Raben Ukraine.

Basic principles regulated in terms of Incoterms:

  • distribution of transport costs for delivery of goods between seller and buyer, i.e. determination of which costs are paid by the seller and until when, and which, starting from what moment, are paid by the buyer.
  • moment when the risks of damage, loss or accidental destruction of the cargo are transferred from seller to buyer.
  • date of goods delivery, i.e., determining the moment when seller actually places goods at disposal of the buyer or his representative - for example, a transport organization - and, therefore, the fulfillment or non-fulfillment by the former of its obligations under the delivery terms.

What updates in Incoterms in 2023?

From the beginning of 2023, the new rules apply, but even after that date there is no obligation to use only the 2023 version of the Incoterms. If you have not specified in your contract which version should be referred to, or if you have a contract that states that the latest versions apply, then the 2023 rules will apply in these circumstances.

  • On-site delivery without unloading. Previously, the rule guaranteed delivery to the terminal, which did not include subsequent delivery to unloading. In new rules, there can be absolutely any destination chosen by the client and specified in the contract.
  • Delivery insurance policy. In previous versions, the seller undertook to take out insurance for the entire delivery for the buyer, in the updated rules, this rule was clarified and described in more detail. Now there are clear limits for insurance of industrial goods, as well as any other cargo. There is a high and medium level of coverage, but other insurance conditions may also be specified. All conditions must be specified in the contract.
  • List of costs. A new item related to the distribution of costs, which is prescribed for each code that are used.
  • Security. Security is the basis of relationship, so the 2023 rules set out many conditions related to this issue.
  • Vehicles for transportation. The 2010 version of the legislation specified that only a registered company could act as a carrier. Now, buyer can pick up his order by himself. This is especially important with delivery, which actually ends at the supplier's warehouse, and further actions are required from the client. Now, buyer can come to pick up goods on their own instead of hiring a company.

Incoterms 2023 conditions have not changed significantly, but small minor changes are absolutely necessary for trade professionals.