GLOBAL DISTRIBUTION

GLOBAL DISTRIBUTION

Global Distribution

Critical Analysis of Incoterms

Incoterms is short for international commerce terms. These terms relate to several important standard conditions in connection with the delivery and transportation of, and risk attached to, goods. The Incoterms have been carefully defined as it has been established how each condition must be interpreted. Using the lncoterms may prevent misunderstandings between supplier and buyer. Each Incoterm arranges the distribution of the costs (transportation, insurance) and the risk (in case of loss and damage) of the physical delivery.

An lncoterm only applies if both parties have reached an agreement about it and the contract will then refer to the Incoterm in question. Incoterms are not part of permissive or imperative law and parties are free to agree to deviations from an incoterm (Kumar 2010). This is risky, however, because adding a word or even a single letter to an Incoterm may lead a judge (especially a foreign judge) to a different interpretation than was intended by the buyer. The Incoterms were first published in 1936 and they have been adapted regularly since.

Ex-Works (EXW)

Ex-Works is the easiest of the Incoterms for exporter, and the most difficult for the importer. In an Ex-Works transaction, the exporter has only the obligation to "place the goods at the disposal of the buyer" and render support in any export license or further official approval required for the export of the merchandise. In addition, the exporter has to package the goods for export, but the exporter does not even have to load the goods onto the importer's prearranged vehicle. It should be evident that this is not all advantageous Ineoterm from the importer's perspective.

Arranging to pick up goods in a foreign country is not easy, and neither is providing domestic transportation or clearing goods for export in a foreign country. In the case where the exporter and the importer agree that the expense and responsibility of loading the goods should fall on the exporter, it is possible to amend the Incoterm to include this condition. This is usually accomplished by including "UAW loaded" to the pro forma invoice. The choice of EXW incoterm should be made only when the exporter knows that the importer is extremely savvy; otherwise, there is a strong possibility that the quote will not be turned into sale, as the exporter's competitors are likely to offer better and more importer friendly terms of trade.

Carriage and Insurance Paid to (CIP)

Conceptually, the CIP Incoterm is the same as the CIF Incoterm, except it applies to goods shipped by means other than ocean transport, or shipped by sea with, tut being handed over the ship's rail (i.e., in the case of roll on/roll off cargo), or containerized cargo using multiple modes of transportation, including ocean transport as one of the modes. In a Carriage and Insurance Paid To transaction, the delivery does not take place in the city of destination, but in the city where the exporter delivers the goods to the ...