As we all know, the world-wide pandemic is disrupting supply chains in many ways – factories closed, bottlenecks at ports, transport hubs and customs facilities due to staff shortages etc.
One of the lessons for use of the Incoterms rules is that we must think through their implications in the light of the fragility of the logistics chain and where attention needs to be given to potential weak points. The efficient movement of goods is critically dependent of the accurate and timely movement of information between many parties.
Let’s look at the Incoterms 2020 rule “Delivered At Place”. This is a popular rule for “end-to-end” movements where the seller takes responsibility for delivery to the named place – often the buyer’s depot.
The tricky point here can be the sequencing of the necessary actions. Sellers may only be able to fulfil their delivery obligations after buyers have fulfilled their obligations, namely to clear the goods for import.
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Hold-ups in customs clearance will give rise to storage charges and other penalties. Furthermore sellers may find themselves in breach of contract for failure to deliver the goods within the agreed timeframe.
A clear-cut example. The goods are being delivered by truck, and the clearance point is a land border. If clearance is held up because the buyer has not made the necessary payment of duty and taxes, the truck driver will have to wait around, incurring costs.
In this instance, the buyer is clearly at fault, and will be required to reimburse the seller. However there may be other reasons for the delay. Perhaps an import licence is incorrectly completed, or the need for an original document at the clearance point has been overlooked. In such cases, it can be very hard to identify the source of the error and the responsible party.
Scenarios such as this emphasise the importance of a single point of coordination of the different parts of the process – typically this will be the freight forwarder.
There may, of course, be ways of bypassing this issue of delivery being dependent on timely import clearance.
Before agreeing to using this rule, sellers look at the practicalities of achieving a trouble-free delivery – if necessary adjusting their prices to cover the extra risk.
With disruption of logistical chains likely to continue, a good understanding of the Incoterms rules is more important than ever