INCOTERMS

It is the abbreviation of International Commerce TERMS, which in Spanish is translated as Términos Internacionales de Venta.

Purpose:The object of the INCOTERMS is to establish a set of international rules for the interpretation of the terms most used in the international trade. This way there will be able to be avoided the uncertainties derived from the different interpretations of such terms in different countries, or at least, will be able to diminish to a great extent.

Often the parts, in an operation, they have a vague knowledge of the different commercial practices used in their respective countries. This can lead to misunderstandings, litigation, and unnecessary processes implying loss of time and money. The INCOTERMS are created and are in use for solving these topics.

The INCOTERMS are eleven, and each of them indicates how to understand each of the following variables:

1-Scope of the price:This will determine, on an international offer, all the expenses that are included in the offer or are supported on the selling part, and which it will have to support the buying part in case of accepting the offer.

2-Place of delivery of the material:It determines with accuracy the place of delivery of the offered goods.

3-Who hire and pay the freight:It refers to the international freight, in some terms (E and F) it will have to be hired and payed by the buyer, whereas in other terms (C and D) this service and cost is provided on the selling part.

4-Transfer of the risk: this one, probably, has been the most troublesome point and is one of the critical ones which made necessary the determination of the present terms. It indicates with accuracy up to where or until which moment the selling part becomes the party in charge by the dedicated goods and where the risk takes the risk on the same buying part. This way, before an event, it will remain exactly stipulated which part must indemnify other one. Additionally it is a key information for the Insurance Companies at the moment of granting an assurance of coverage of international logistics.

5- Who hires and pays the Insurance:independently from where the transfer of the risk comes from, this factor determines the one who will pay the price or cost of the International Transport Insurance coverage.

6-Documentation to be provided by the Exporter:finally, according to the term used above the documentation provided by the purchasing part will be properly declared, in consequence, the buying part will know which the documents he would have to count with. As it was mentioned above, the INCOTERMS are eleven, and they are divided in groups, so we found 4 groups that we might state as follows:

ORIGIN TERMS

Here you find the GROUP of terms “E”, and the GROUP of terms “F”.

DESTINATION TERMS

Here you find the GROUP of terms “C”, and the GROUP of terms “D”.

It is necessary to remember that in order the INCOTERM has full use it might ALWAYS go together with the "named place" between brackets after the INCOTERM.

Group E

EXW(named Place). Abbreviation of EX-Works, which in general means At the door of the factory. IN FACTORY (AGREED PLACE)

Group F

FOB(named Loading port). Abbreviation of Free On Board.
FAS(named loading port). Abbreviation of Free Alongside Ship, which in general means Free to the side of the ship.

FCA(named place). Abbreviation of Free Carrier.

Group C

CFR (named destination port). Abbreviation of Cost and Freight.

CIF(named destination port). Abbreviation of Cost, Insurance and Freight.

CIP(named destination place). Abbreviation of Carriage and Insurance Paid to.

CPT(named destination place). Abbreviation of Carriage Paid To

Group D

DAT(named destination port) Abbreviation of Delivery At Terminal

DAP(named destination place) Abbreviation of Delivery At Place
DDP(named destination place). Abbreviation of Delivery Duty Paid.

The Incoterms, also known as Sales Conditions , determine the rights and the obligations of the importer and the exporter. The Sales Conditions are classified according to the responsibilities and costs in which the seller and the buyer incur. Their choice not only answers to the negotiation done between the parts, but also, agrees on commercial usual practices, characteristics of the product and on the base of the acquired experience.

Saccording to the last characteristic indicated in the previous paragraph, we can conclude that for people or companies that are launched by the first time in the international dealing it is recommended:

- If you are evaluating the possibility of contacting a supplier in another country to import its products it is recommendable to request, if it was possible, a price (quote) in terms "C" or "D", so that you make contact with the cargo when it arrives at the port or airport of destination. And as you acquire experience it is recommended to request prices to the supplier in terms "E" or "F" and you will have the possibility of taking control on the load from origin to all the logistic related. - Besides, if you are thinking of exporting, the mechanism would be exactly inverse, at the beginning it is recommended to calculate budgets and operations in terms "E" or "F", and as you acquire experience is advisable to bring the product the closest possible to your target client or market using the terms "C" or "D".