Practicing exporters as well as importers are familiar with the word “incoterms.” Incoterms are trade terms used in international trade which have gained international standard meaning. Incoterms have been prepared as early as 1936 by the International Chamber of Commerce (ICC). Incoterms is short for International Commercial Terms. Likewise Incoterms is a trademark of ICC registered in many countries.
To keep pace with the ongoing developments and trends in international trade practices, Incoterms have been undergoing changes many times – including amendments and additions in 1953, 1967, 1978, 1980, 1990, 2000, 2010 and the latest version is 2020 which has been effective since January 1, 2020. However, Incoterms 2010 is still in effect for those using them.
Exporters and importers have to be updated of the latest interpretation of the Incoterm trade terms. While the parties to a contract of sale (buyer and seller) are free to define the trade terms the way they want it (and which may not coincide with the ICC interpretation of the Incoterms) – still, there is a need for exporters and importers to understand incoterms. Simply because incoterms have already gained a worldwide acceptance in the international market and it would be less complicated and less confusing to just ride on the interpretation prepared by ICC.
By the way, while the use of Incoterms are very prevalent in international trade, buyers and sellers in the domestic trade are also using them to define their respective obligations, costs, and risks in the delivery of the goods.
Changes in the Incoterms have taken into account the increasing use in international trade of electronic tools and techniques like the use of electronic data interchange (EDI) facility. Also, changes in transportation techniques like the multimodal transport system have significantly altered the interpretations of the incoterms. In short, the changes in the incoterms to keep attuned with contemporary trade practices, techniques, and policies.
Basically, the Incoterms determine the sharing of costs, risks and responsibilities of the seller and the buyer. In the event something goes wrong with the transaction covered by a contract of sale, the incoterms play a key role – as when the goods are pilfered while on board the ship, or a fortuitous event like a typhoon damages the goods or the buyer goes bankrupt while the goods are in transit.
Time and again, new exporters have been discouraged to pursue their export business because of problems encountered. Lack of working knowledge of the Incoterms is one of the major problems of new exporters. Quoting an export price to a foreign buyer without an Incoterm following the export price is an indication of the lack of knowledge of the Incoterms. Unless the foreign buyer is also like the Philippine exporter-seller who lacks knowledge on Incoterms, the foreign buyer will hesitate to transact business with a foreigner who does not understand incoterms. Why? Because the foreign buyer and the Philippine seller will not see eye to eye as to the interpretation of trade terms and problems will certainly ensue.
Incoterms apply only if the buyer and seller specifically provide in their Contract of Sale a provision that the contract is governed by Incoterms. It is important to clearly specify the version of Incoterms for contracts executed starting 2011 (e.g. Incoterms 2010, Incoterms 2000 or any earlier version). This option of choice is allowed.
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