Incoterms
Today, local businesses have the opportunity to sell their goods overseas through e-commerce platforms that also handle the overseas shipping. Managing the complexities of this process is often a task that small businesses are not able to complete themselves, especially when it comes to understanding incoterms.
Short for “International Commercial Terms”, incoterms are a set of rules that define who is responsible for what, during an international transaction. First published by the International Chambers of Commerce (ICC) in 1936, these terms spell out very clearly all the tasks, risks and costs involved during the transaction of goods from the seller to buyer.
While a lot of information is involved, incoterms simplify the drafting of contracts with the use of three-letter acronyms. For example, DAP stands for “Delivered At Place”, which indicates the seller covers the costs and risk of transporting goods as well as unloading these goods at an agreed destination.
This clarity reduces the risk of miscommunication over who is responsible for the risk and transport of purchased goods during international trade, which can result in unnecessary delays in shipping. Indicating the incoterms in a sales contract also helps to minimize disputes and litigation.
Every 10 years, the ICC publishes an update of the Incoterms. In 2020, the expected revisions include the removal of Ex-Works (EXW) and Delivered Duty Paid (DDP) among others.
Read more about Incoterms 2020 rules here.
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