The Incoterms rules – keeping it simple

How may rules do most organisations need?

The number of Incoterms rules has fluctuated over the years. The Incoterms 2010 revision reduced the number from 13 to 11, and the Incoterms 2020 revision has stayed with these same 11 rules, (albeit with the name change of DAT to DPU)

In practice, most organisations only need about half that number for the vast majority of their transactions.

Let’s start by looking at the extremes of responsibility and cost sharing, Ex Works and DDP.

Nowadays Ex Works is inappropriate for all cross-border transactions, because the seller cannot disengage entirely from reporting obligations. DDP raises a host of difficulties, and most organisations will impose strict conditions on its use, or ban it entirely.

Next, the four “water” Incoterms rules – FAS, FOB, CIF, CFR. Misuse of these rules continues to be widespread. The major uses of these rules should be for bulk shipments of commodities etc. that are directly loaded onto the ship from a dockside facility; for outsize loads that cannot be containerized; and for “break-bulk” goods which are loaded piece by piece from the quayside.

For everything else – containers, air freight, road and multimodal – one of the “All transport modes” rules should be used.

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So our list is now down to five – FCA, where the buyer takes responsibility for carriage; two “C” rules, CIP and CPT; and two “D” rules, DAP and DPU. The seller’s willingness to take the responsibilities inherent in the “D” rules will be influenced by factors such as the quality and reliability of transport infrastructure and customs clearance processes in the buyer’s country. The prudent seller may also wish to “price in” these risks when preparing quotations.

The above considerations alone may be sufficient for the development of a high-level organizational policy for selection of an Incoterms rule. Refinements may of course be necessary for dealing with different product lines and markets, or when the organization is the buyer and not the seller.

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