Understanding the New Incoterms
Understanding the New Incoterms

Understanding the New Incoterms

March 11th, 2011 - The revised Incoterms 2010® rules highlight the need for greater security and the importance of…

Careful examination of international trade rules can boost business

The new Incoterms 2010® published by the International Chamber of Commerce came into effect at the beginning of the year, setting new standards for domestic and international trade.

The revised rules reflect heightened security concerns worldwide and underscore the importance of choosing the right Incoterms rule for sales contracts to master the transfer of risk and transport times and minimize the risk of legal complications and unexpected costs.

“Both buyers and sellers must fully understand their obligations under the different Incoterms rules,” explains Stéphane Hamouche, head of customs affairs at SDV Corporate in Paris. “Companies can make or lose a lot of money depending on which rule they choose and whether they have control over transportation.”

Internationally recognized trade terms, Incoterms determine when the costs and risks are transferred from the buyer to the seller in the delivery of goods. The Incoterms 2010® reduce the total number of rules to 11 from 13 and define obligations such as whether the buyer or seller is responsible for transport or import and export clearance and duties.

Security obligations are a new feature of the Incoterms 2010®. In line with the European Union's Authorised Economic Operator concept and the Customs-Trade Partnership Against Terrorism in the U.S., the updated rules require greater cooperation between buyers and sellers in security procedures.

Both parties must now obtain or render assistance in obtaining security-related clearances including chain-of-custody information, the rules state.

When considering other obligations, Hamouche recommends either buyers or sellers chose an Incoterms rule that gives them maximum control over the transport chain in order to monitor costs and minimize delays and risks.

He advises sellers, for example, to choose DAT or DAP rules (Delivered at Terminal and Delivered at Place) where the seller controls the risks, delays and costs of transporting the goods to a named terminal or place of destination. That allows the seller to manage the transport costs that are included in the calculation of the customs valuation of the goods, Hamouche says.

At the same time, the seller does not have responsibility at the destination for import formalities such as customs clearances and import licences under the DAT and DAP rules, so avoiding the need to navigate different customs regulations for each country. The seller is obliged to provide a security declaration under the DAT and DAP rules, with some exceptions.

Meanwhile, Hamouche counsels buyers wanting to command transportation to choose Incoterms such as the FCA (Free Carrier) rule that grants them control over transport and import formalities. He never advises the EXW (Ex Works) rule unless the buyer and the seller are located in the same territory.

“You don't have control over the costs that are included in the customs valuation and that could prove very expensive,” he warns.

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