Jeremy Ferrer
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The INCOTERMS, as their English name indicates:
International Commercial TERMS, are international trade terms, recognized and used worldwide for international contracts.
They define obligations of the purchaser and from the seller regarding delivery.
They clarify how all the transport costs And when is the transfer of risk.
Be careful though, INCOTERMS do not define transfer of ownership, because it is the full payment of the bill which makes it possible to acquire ownership of the property.
Document to download: International payment deadlines
Incoterms are defined and updated every 10 years by the International Chamber of Commerce.
We are now talking about INCOTERMS 2022 because the last update is applicable from January 01, 2020 to December 31, 2029.
In international trade, between a seller and a buyer, several actors intervene in the logistic chain.
The seller makes his goods available, they are then loaded into a truck that delivers to a logistics hub or a freight forwarder (this is pre-delivery), before going through customs and being loaded onto the main means of transport (It can be Land, sea, rail or air).
The mode of transport that will cover most of the journey is called main transport.
It is then necessary to unload the goods from the main transport (which can be a truck, a plane, a plane, a boat or a train), go through customs again, and do the post-delivery (i.e. do the last kilometers that will allow the goods to be taken to the buyer's house where they will be unloaded at their final destination).
In the diagram below we find all the actors in the logistics chain.
1/ At each of these steps, costs are added up, but who pays for them? The buyer or the seller? A first bar therefore shows who pays for the transport and up to what stage.
2/ If a disaster occurred during the supply chain, who would be responsible for it? The buyer or the seller? Again, Incoterms answer this question with the second bar in the diagram that illustrates the transfer of risk.
3/ In most cases, seller insurance covers the risk suffered by the seller only, which is illustrated by the third bar in the diagram, but we will see that for some specific incoterms, seller insurance may also cover some of the buyer's risk.
To see more clearly, for each of the Incoterms, we will thus distinguish between the seller's part and the buyer's part, with 2 distinct colors.
Ideally, for each commercial transaction that includes delivery from the seller to the buying customer, choose a suitable incoterm.
The choice of the incoterm is made on the offer of the seller or at the time of negotiation of the transaction, after agreeing on the price or the content of the delivery.
Now let's go over the 11 2022 Incoterms.
EXW (“Ex-Works”) is the easiest for the seller since the buyer takes care of everything.
FCA (“Free Carrier”) is a pre-routing incoterm. It can cover the loading of the goods into the truck or the delivery to a national freight forwarder.
CPT (“Carriage Paid To”) where transport is paid for by the seller to the place of destination. On the other hand, it is the buyer who covers the risk.
An alternative exists to the CPT where the seller's insurance covers the buyer during delivery to the destination. It is about the CLIP (” Carriage & Insurance Paid to”).
The same principle will be found for 4 incoterms specific to maritime transport:
FAS (“Free Along Ship”) which covers pre-delivery to the ship
FOB (“Free On Board”) which integrates the loading of goods onto the boat
CFR (“Cost & Freight”) where the main transport is paid for by the seller, but the buyer covers the risk
CIF (“Cost & Insurrance Freight”) which is a derivative of CFR where the seller's insurance covers the main transport.
Finally, the last 3 Incoterms can be used regardless of the main mode of transport.
DAP (“Delivery At Place”) which covers post-delivery
DPU (“Delivered at Place Unloaded”), which also includes the unloading of the goods Of the main transport. This is a new Incoterm 2022 that replaces the Incoterm 2010 DAT.
And finally DDP (“Delivery Duty Paid”) which is the preferred incoterm for buyers, in the sense that there is nothing to take care of, the seller takes care of everything.
In summary, on 11 Incoterms 2022 that we have just seen and for which you will find all the details on the site formation-achats.fr,
We find 1 which is a starting incoterm.
It starts with the letter E: EXW
3 incoterms cover pre-delivery and they all start with the letter F, FCA, FAS and FOB, the last 2 being specific to maritime transport
4 incoterms, those beginning with the letter C, relate to paid main transport.
CPT and CIP valid for all modes of transport, CFR and CIF specific to maritime transport.
The letter I of CIP and CIF refers to the insurance that is covered by the seller (Insurance in English).
And finally, the 3 incoterms that start with the letter D cover up to the final destination, with their specific features: DAP, DPU and DDP.
If you want to go further on the INCOTERMS 2022, do not hesitate to train yourself on the subject with training-purchasing.
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