WHAT IS THE ORIGIN OF INCOTERMS?
In 1936, just before the outbreak of the Second World War, representatives of the International Chamber of Commerce decided to standardize trade practices and publish six trade terms called INCOTERMS, with the main objective of helping the parties regulate certain aspects related to the sale of goods.
Although these rules, which depend on the autonomy of the contractual actors, were created with the purpose of harmonizing and facilitating commercial operations, at the same time, they also required that the parties involved had an understanding and adequate training on these rules, which implied a process of cultural and professional homogenization in the field of trade.
Today, in 2024, we can say that we have a catalogue of eleven terms, after having undergone multiple legislative modifications, the most recent in the context of the 2020 pandemic, with additions and deletions during these years. In practical terms, the crux of the matter in this article is that in many cases it seems that the Incoterm is treated as a decorative element of the sales contract and not as a fundamental pillar of it.
A FEW ERRORS IN THE SELECTION OF INCOTERM
As an example, many contracting parties still agree to submit to the term EX WORKS “EXW”, an ambiguous and obsolete term, “obliging” the buyer to load the goods at the designated point and carry out customs clearance in the country of origin. This implies the submission of the buyer to a real “challenge”. At first glance, it may seem simple, although it does not make much sense for the buyer to load the goods at the seller’s factory; since the manufacturing company is subject to a strict
workplace risk prevention policy, so it would be more reasonable for the latter to load the goods, respecting internal procedures subject to audits.
On the other hand, in customs terms, it should be added that it is more convenient for the exporter who appears in the SHIPPER/EXPORTER box of the SAD to be the one who carries out customs clearance.
Another common mistake is the use of maritime INCOTERMS for multimodal transport, because we remember that normally when we carry out a merchandise with a container, it already has an inherent land phase and a maritime phase, even a land phase at destination can be added if we agree on a delivery at a point other than the port of destination, well, in that case we should use the CFR and CIP incoterms, instead of CPT or CIP.
Regarding the contracting of insurance market policies, it also gives rise to incorrect assessments, since the 2020 update, the CIP term requires the seller to contract an ICC “A” policy; so it is clear that not any insurance is valid. Despite everything, it seems that many companies continue to not give the greatest importance to contracting insurance, without taking into account the contractual responsibilities that this implies. Another relevant point is that regardless of the term that we have agreed in the contract, a CIF value will always be used to calculate the customs debt. Therefore, our ability to negotiate freight will be important, since the freight amount will be included in the arithmetic operation.
Finally, it is noteworthy that when agreeing on the INCOTERM, a series of vital points will be left out, such as the purchase price, the form, means of payment, quality, quantity, technical characteristics, its approval and industrial or intellectual property rights.
For all the above, we believe that it is crucial that in a purchase and sale of goods, whether international or national, an INCOTERM be included that provides a WIN-WIN for the contracting parties with the aim of speeding up negotiations and balancing the risks inherent to the activity.
