How can you ensure your insurance policies comply with International Commercial Terms? (2024)

FAQs

What is international commercial terms in contract? ›

What are INCOTERMS? INCOTERMS are the language you'll need when you're trading abroad, defining the trade contract responsibilities and liabilities between a buyer and a seller. They cover who is responsible for paying freight costs, insuring goods in transit and covering any import/export duties, for example.

Meant for business-to-business trade, Incoterms define the responsibilities of the buyer and seller in the delivery of goods. Incoterms also convey risk, which party should pay what charges, and where physical delivery occurs. That said, they communicate neither payment terms nor title of goods.

Put the Incoterms on the contract before signing

Add Incoterms to the contract, indicating the version used and providing any other required information. For example, some rules will require buyers and sellers to indicate both a delivery location and a destination.

Incoterms provide legal transparency between shipping companies of various nations through standardized rules identified by common codes for all modes of transportation.

Incoterms 2020 rules are the official commercial terms published by the International Chamber of Commerce (ICC). They are a voluntary, authoritative, globally-accepted and adhered-to text for determining the responsibilities of buyers and sellers for the delivery of goods under sales contracts for international trade.

With the exception of CIF and CIP terms, INCOTERMS place no burden on the seller or buyer to provide insurance. However, depending upon the actual term used for each shipment the seller or buyer bears responsibility for loss or damage to the goods at some point during transit.

The Basics of an Insurance Contract

Declaration Page. Insuring Agreement. Exclusions. Conditions.

In this article, we will delve into the basics of Incoterms, focusing on six commonly used terms: Ex Works (EXW), Free On Board (FOB), Cost and Freight (CFR), Cost Insurance and Freight (CIF), Delivered At Place (DAP), and Delivered Duty Paid (DDP).

The Incoterms rules are not mandatory. They are not laws enacted by governments, but rather, guidelines agreed to by parties to a contract.

How do you negotiate Incoterms? ›

If your supplier proposes a different INCOTERM than your preferred one, you need to compare and negotiate the terms and conditions. You should evaluate the pros and cons of each option, taking into account the impact on your costs, risks, and obligations.

In choosing the right incoterm, buyers and sellers must consider their experience level. For example, EXW Incoterm is not suitable for importers. A buyer with more experience importing goods can decide on Ex Works Incoterm. DAP, DDP, and DPU Incoterms are good for importers with little experience.

For an international purchase operation, the most advantageous Incoterms for the importer will be DAT (Delivered At Terminal), DAP (Delivered At Place) and DDP (Delivered Duty Paid). The buyer is only responsible for customs formalities in the country of arrival, inland transport to his premises and unloading.

The core functions of Incoterms® used in international trade: Outline the obligations of the buyer and the seller in a trade transaction. Clarify when risk passes from seller to buyer under each of these rules. Outline how costs are allocated between the buyer and the seller.

Incoterms 2000 – International commercial terms

They are used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices. They closely correspond to the U.N. Convention on Contracts for the International Sale of Goods.

International contracts refers to a legally binding agreement between parties, based in different countries, in which they are obligated to do or not do certain things. International contracts may be written in a formal way.

There are 11 Incoterms in total, and they are divided into two categories: Incoterms for Any Mode of Transport: These include EXW (Ex Works), FCA (Free Carrier), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), DAP (Delivered at Place), DPU (Delivered at Place Unloaded), and DDP (Delivered Duty Paid).