A foreign trade contract of sale, as a rule, involves the movement of goods over a fairly significant distance. When concluding this contract, therefore, it is always necessary to carefully regulate the issues of delivery of goods from the seller to the buyer, its loading, insurance, etc.
In the practice of international trade, a number of generally accepted customs have developed that regulate these issues. These customs are the basic conditions of a foreign trade contract of sale.
The basic terms of delivery in the contract of sale are called special conditions that determine the obligations of the seller and the buyer to deliver the goods and establish the moment when the risk of accidental destruction or damage to the goods passes from the seller to the buyer.
Thus, the basic conditions determine who bears the costs associated with the delivery of goods from the seller-exporter to the buyer-importer. These costs are very diverse and sometimes make up 40-50% of the price of the goods. These may include: the cost of preparing the goods for shipment (quality and quantity control, sampling, packaging); payment for the loading of goods on the means of transportation of the domestic carrier (water, rail, road, air and other modes of transport); payment for the transportation of goods from the point of departure to the main means of transportation; payment of the costs of loading the goods on fixed assets at the point of export; payment of the cost of transportation of goods by international transport; payment of cargo insurance in transit for sea and other types of transportation; costs of storing goods in transit, transshipment and repacking; the cost of unloading the goods at the destination; the cost of delivery of goods from the destination to the buyer’s warehouse; payment of customs duties, taxes and fees when crossing the customs border.
The costs of delivery of the goods, which are borne by the seller, are included in the price of the goods. These conditions are called basic because they establish the basis of the price of the goods and have an impact on the price level.
Basic conditions are developed by international trade practice. Their use simplifies the drafting and coordination of the contract and the resolution of disputes.
The content of these conditions is not generally accepted in international trade, but is determined, as a rule, by trade customs that have developed in the commercial practice of individual countries, ports, branches of trade. Due to the diversity of trade customs, the interpretation of the same terms in different countries is different (for example, the terms FOB, CIF according to the Uniform US Commercial Code and their understanding in Europe). The emergence of new types of transportation of goods has also necessitated the development of uniform rules for the interpretation of relevant terms.
In order to regularize the differences in the interpretation of terms and to unify the rules of international trade, the International Chamber of Commerce in 1936 developed and published a collection of international rules on the interpretation of commercial terms under the title “International Commercial Terms – INCOTERMS 1936”.
The purpose of INCOTERMS is to draw up international rules to explain the most commonly used terms of supply in foreign trade, which makes it possible to minimize differences in the interpretation of these terms in different countries.
Objectives of INCOTERMS:
1. Determine the contract price of the goods depending on what costs the seller includes (insurance, transportation, etc.).
2. Determine the moment when the seller fulfills the obligation to transfer the goods to the buyer and to transfer the risk of accidental death or damage to the goods in this regard.
3. Determine the obligations and costs of the seller and the buyer associated with the delivery of the goods.
Due to changes in international trade practices, additions and adjustments were made to the compendium in 1953, 1967, 1976, 1980 and 1990. Currently, since 01.01.2001, INCOTERMS of the 2000 edition have been operating.
The main reasons for the revision of INCOTERMS in 2000 are as follows:
adaptation to modern commercial practices; the desire to adapt the terms to the increasing volume of data exchange electronically; change in the technology of cargo transportation.
The latest edition takes into account the increasing use of multimodal (multimodal, combined) transport, providing for the transfer of goods from the seller to the buyer at any point in the transport chain, instead of establishing a critical point of transfer of risks when crossing the handrails of the vessel, as in the previous edition of INCOTERMS. The great advantage of the new edition of the collection is that it clearly defines the obligations of both the seller and the buyer to load and unload the goods. When using one of the terms INCOTERMS in the contract of sale, it is mandatory to indicate the specified geographical location and even the specific place of transfer of risks.
In addition, significant changes from the previous edition have been made in two areas:
customs clearance and customs payments under the terms FAS and DES; loading and unloading duties under the FCA term.