Incoterms

The 11 International Commercial Terms (Incoterms) provide a standardized framework governing the respective obligations of buyers and sellers in international trade transactions, specifically concerning the carriage of goods. These terms delineate the allocation of costs and the transfer of risks between parties at distinct points throughout the shipping process.

Rules for sea and inland waterway transport:

• FAS (Free Alongside Ship): The seller delivers the goods alongside the vessel at the named port of shipment.
• FOB (Free on Board): The seller delivers the goods on board the vessel at the named port of shipment.
• CFR (Cost and Freight): The seller pays for the carriage and freight of goods to the named port of destination.
• CIF (Cost, Insurance, and Freight): The seller pays for the carriage, freight, and insurance of goods to the named port of destination.

Rules for any mode of transport:

• EXW (Ex Works): The seller makes the goods available at their premises for the buyer to collect.
• FCA (Free Carrier): The seller delivers the goods to a carrier nominated by the buyer at a specified place. 
• CPT (Carriage Paid To): The seller pays for the carriage of goods to the agreed destination.
• CIP (Carriage and Insurance Paid To): The seller pays for the carriage and insurance of goods to the agreed destination.
• DAP (Delivered at Place): The seller delivers the goods at the named place of destination. 
• DPU (Delivered at Place Unloaded): The seller delivers the goods at the named place of destination, and also unloads them.
• DDP (Delivered Duty Paid): The seller delivers the goods at the named place of destination, including all duties and taxes. 

The International Commercial Terms, commonly abbreviated as “Incoterms”, is a set of globally recognized regulations that outlines the party responsible of the multiple aspects of a particular shipment. This includes costs, risks, and duties, spanning the entire process from the point of sale through to final delivery.

Incoterms are indispensable to international commerce, offering a standardized framework that facilitates a clear understanding of responsibilities and liabilities within international trade agreements.

Here’s a quick breakdown of what Incoterms do:

• Define responsibilities:
  • Incoterms clarify who is responsible for tasks like packing, loading, shipping, insurance, customs clearance, and delivery.
• Outline cost allocation:
  • They specify who pays for transportation, insurance, and any other costs associated with the shipment.
• Establish risk transfer:
  • Incoterms define when the risk of loss or damage to the goods passes from the seller to the buyer during the shipment.
• Standardize trade practices:
  • They provide a universally accepted set of terms, which helps to avoid confusion and disputes in international trade contracts.

Incoterms, while standardizing delivery obligations in international trade, don’t cover everything in a sales contract. This includes:

• Payment terms:
  • Incoterms don’t specify how or when the buyer should pay for the goods.
• Ownership transfer:
  • They don’t address when title or ownership of the goods passes from the seller to the buyer.
• Breach of contract liability:
  • Incoterms don’t define liability for breaches of contract, such as failure to provide conforming goods, delayed delivery, or dispute resolution.
• Specific documents:
  • They don’t list all the documents required for customs clearance in the buyer’s country.
• Warranty:
  • Incoterms don’t cover warranty obligations, unless explicitly stated in the sales contract.
• Force majeure:
  • Incoterms don’t address regulations in case of force majeure (unforeseeable events).
• Insurance:
  • While some Incoterms like CIP and CIF include insurance, others don’t explicitly address insurance responsibilities, and buyers may need to arrange it separately.

No, generally, Incoterms should not and practically cannot be effectively changed after a shipment has commenced or been completed.

The core purpose of Incoterms is to define the obligations, costs, and risks between a buyer and a seller before and during the shipment process. Once the goods are in transit, or have even been delivered, key events tied to the originally agreed Incoterm have already occurred:

• Transfer of Risk: The point at which risk for loss or damage to the goods passed from the seller to the buyer has likely already happened based on the original Incoterm. Attempting to retroactively change this is problematic, especially if an incident occurred.

• Allocation of Costs: Costs for transport, insurance, loading, unloading, and customs clearance would have been incurred and likely paid (or invoiced) according to the original Incoterm. Unwinding and reallocating these post-shipment is extremely difficult.

• Fulfilment of Obligations: The seller and buyer would have performed their respective duties (e.g., arranging transport, obtaining export/import licenses, providing documents) based on the initial agreement.

• Documentation: Shipping documents, customs declarations, and insurance certificates will reflect the original Incoterm. Amending these retrospectively can be a bureaucratic nightmare and may not even be permissible by customs or banks.

While technically, any contract (including the sales contract specifying the Incoterm) can be amended if both the buyer and seller mutually agree in writing, doing so for Incoterms after shipment is fraught with complexities and is highly discouraged. It would create significant legal and practical hurdles in reconciling actions already taken and costs already incurred with the new, retroactively applied term, potentially leading to disputes and confusion. The practical reality is that the ship has, quite literally, sailed on the original terms.