First, we should get some legal stuff out of the way. INCOTERMS® is a registered trademark of the International Chamber of Commerce, registered in several countries. Given ICC’s sensitivity to their ownership of this trademark, we should always respect it with the appropriate symbol, i.e. ®.
INCOTERMS® have been used in a practical sense for hundreds of years. However, it was not until 1936 that someone thought it wise that everyone in international trade use the same definition of those terms. So, in that year, the International Chamber of Commerce introduced many of the terms and definitions that we recognize and use today. They have been revised/updated seven times since their creation, and we are currently using the 2010 version.
INCOTERMS® are used to establish responsibility for certain actions in the international transaction, e.g. export clearance and import clearance of goods. Also, there are numerous costs associated with every international shipment. Who will pay for those costs? The Seller? Or the Buyer? Tell me your INCOTERM® and I can tell you who is responsible for any cost at any time within the shipment. This is obviously something that should be understood early in negotiations, since additional costs could impact pricing decisions needed to protect profits for the Shipper. There are also many “bad things” that may happen to your product while in transit, including water damage, breakage, and fire, but not limited to these. When this occurs, whose problem is it? The INCOTERM® will clearly define the point at which risk transferred from the Seller to the Buyer. Therefore, once it is determined exactly when the damaged occurred, it is a simple matter to determine who has an issue.
As you can see, the INCOTERM® can have a significant impact on whether our international shipment succeeds or fails. Our knowledge of these INCOTERM® rules will determine how well we perform as we sell or buy in the international markets.
Paul E. Patterson (TN DEC Member)
Paul, a former International Trade professional at Eastman Chemical Company, is now a Trainer/Consultant in Exports. He speaks about Exporting to audiences of any size, hoping to increase knowledge and enthusiasm for the subject.