International Commercial Terms (Incoterms)

International Commercial Terms (Incoterms)

As defined by Daniel Quiroga, International Commercial Terms or rather Incoterms are voluntary 3-letter terms used in international and domestic contracts to specify how goods are to be delivered and to avoid misunderstandings by clearly identifying the responsibilities of the buyer and seller. DHL benefit a lot from Incoterms since they were developed as a set of standards for international deliveries in order to make international trade more efficient. 

At DHL, when it comes to the delivery of goods from the seller to the buyer, Incoterms® determine the rights and responsibilities of the parties. As such, they give a common framework for understanding how and by whom transport happens, who takes on the risks involved, and who is responsible for ensuring the security and customs compliance of the shipment. As of today, Incoterms® 2020 contain 11 terms. Of these, four are designed specifically for ocean freight, since they apply exclusively to sea and territorial water transport; the remaining seven apply to any type of cargo delivery, including transportation by water. 

Generally, Incoterms utilize the same structure - three-letter acronym and location name. In the context of transportation costs, the location name indicates where those costs will be passed onto the buyer. Nevertheless, despite using the same location name, the different Incoterms may not indicate where the risks are being transferred or identify the parties that should coordinate transport insurance. Basically, Incoterms rules define eleven of the most common three-letter trade terms in international contracts for the sale or purchase of goods, e.g. CIF, DAP, etc. They reflect practice between businesses when transacting business.  These set of rules for any mode of transport or modes of transport include Ex works (EXW), Free Carrier (FCA), Carriage Paid To (CPT), Carriage Insurance Paid To (CSPT), Delivered At Place (DAP), Delivered Place Unloaded (DPU) and Delivered Duty Paid (DDP). In contrast, Rules for sea and inland water transport include; Free Alongside Ship (FAS), Free On Board (FOB), Cost and Freight (CFR) and Cost Insurance Freight.