Blog contribution by iContainers
As the end of the decade draws near, the shipping industry is getting ready to welcome a new version of Incoterms.
Since 1980, the International Chamber of Commerce (ICC), the largest, most representative business organization in the world, has been revising Incoterms at the turn of every decade.
Each revision has helped to enhance negotiations between buyers and sellers and facilitate international trade processes.
There’s been speculation surrounding the removal of Ex Works (EXW), an international trade term by which a seller makes the product available at a designated location, and the buyer incurs transport costs, which is surprising given its versatile nature. Nevertheless, this makes sense if the ICC intends to encourage the use of Free Carrier (FCA), the rule of choice for containerised goods where the buyer arranges for the main carriage, in its place.
Under FCA, exporters are responsible for customs clearance at origin and have more shipment control at this stage. This way, export information provided to census bureaus will be more accurate, which helps to maintain a country’s trade balance.
The Delivered at Terminal (DAT) Incoterm, which refers to the seller delivering the goods, once unloaded from the arriving means of transport, brings a bit of question mark, as it’s not that different from Carriage and Insurance Paid To (CIP) — when a seller pays freight and insurance to deliver goods to a seller-appointed party at an agreed-upon location.
When you consider the risks and responsibilities of both Incoterms, the only difference lies in the payment of destination charges and insurance.
In some countries like Mexico for example, terminal, port, and customs fees are usually bundled together and handled by the consignee-appointed broker. In such cases, sorting out destination charges can be complicated and even lead to double charges. In my humble opinion, unless this problem is addressed, DAT should be phased out.
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It looks like the ICC is aiming for simplicity and practicality with Incoterms 2020, which is very much needed.
From my experience, the main problems with Incoterms stem from a lack of knowledge and inexperience. Incoterms are meant to guide the transaction between buyer and seller. Yet I’ve come across numerous cases in which the information on the paperwork by both parties do not correspond with the agreed-upon Incoterm.
Given the speed at which technology and automation is permeating the industry, it’s getting increasingly easier to book a shipment.
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This has encouraged new entrants with little to no shipping experience to dip their feet into the world of ocean freight. That said, considering the huge role Incoterms play in international transactions, more clarity will definitely be needed.
Injecting clarity is also a good solution to ensure that Incoterms are employed correctly. But this will be an immense challenge for the ICC. The committee can come up with guidelines and the member countries can accept it. Nevertheless, it will ultimately depend on the buyers and sellers directly involved with the purchase agreement to understand and apply them correctly.
In light of this, I hope the ICC can find a way to complement its aim of simplifying Incoterms with a more stringent enforcement of the proper usage of each Incoterm. Such measures will be needed moving forward in a world where markets and industries are constantly evolving to adapt to the rapid pace of globalization.
Roberto Laurino’s bio:
Roberto Laurino is the Director of Global Business Development at iContainers. He has 16 years of experience in the freight forwarding industry and has worked in different countries including Brazil, Canada, and USA. Over his career, he has specialized in different verticals like projects, automotive, energy and these days he is responsible for iContainers’ global network of agents.