Growing global connections is exciting... Trade barriers are falling and the world is your marketplace. Though fascinating language and cultural differences will always be there (we hope), universal shipping terms let us all clearly know who is responsible to do what.
- Is the seller insuring the goods during transport?
- Is the buyer expected to file export papers?
You’ve seen the multi-color charts, laying out duties under INCOTERMS® 2010. Color coded graphics are pretty but do you really understand what the rainbow arrows could mean to your wallet? Some trade terms have been misunderstood for years and misuse of a term can be costly.
Important INCOTERM things to remember:
- International commercial terms (Incoterms) are much different than UCC terms you’ve dealt with in US operations. Keep up-to-date on the current definitions; terms used last year may have changed!
- Incoterms define any shipping responsibilities and where “legal delivery” occurs.
- An international goods contract should consider packaging, customs fees and transport obligations.
- “Legal delivery” is the point where responsibility for the goods shifts to the buyer; this can be well before physical delivery!
- Depending on the Incoterm, the seller or buyer may have to file shipping insurance claims.
- Incoterms do not determine ownership. The other terms of a contract do that.
- International contracts can operate under “intended Incoterms” even if they aren’t mentioned, so it’s best to clearly specify the single Incoterm that makes the most sense for each project.
- Always include the suffix “Incoterms 2010” and name a place with your Incoterm, like this: “FCA Frankfurt Airport; Incoterms 2010”.
- Incoterms are guidelines –tweak the responsibilities in the contract if your situation requires.
Here are a few of the more common terms you may see in international contracts and some things to think about:
EXW (Ex-works at named point)
This is a commonly misunderstood Incoterm! Per Incoterms 2010 (as well as the 2000 version), EXW calls for the seller to “package the goods in the manner appropriate for their transport” (taken from Incoterms 2010). This is obviously a challenge when selling a piece of equipment EXW from the site where it is installed. It is very important to include notes in the body of the contract to provide further details regarding each party's responsibilities in the contract. A note saying “buyer is responsible for all costs associated with the deinstallation, transportation from the site, and proper packaging of the goods” can save everyone a lot of headache. Make sure both parties are in agreement with what is included in the purchase.
That said, whether imaging equipment is still in a hospital or now in a warehouse, the buyer must arrange and pay for loading, shipping, and all customs / import paperwork. You also should provide clear instructions if you desire specific packaging requirements: Do you expect full crating with moisture barriers? Shock indicators? Remember, the transfer of risk happens the moment equipment is moved from the floor for loading, so be sure that the 64-slice CT scanner is well protected before your agent touches it.
FCA (Free Carrier at named point)
This Incoterm applies to any mode of transport. Your equipment will probably be loaded inside a container and travel part of the journey via truck, ship, air, or rail. Under FCA, the seller must provide export-cleared goods to a carrier at the agreed upon place. Upon delivery at the FCA point, the buyer pays for the rest of the transport and for downstream handling and loading charges. Buyers should keep this in mind during negotiations to minimize the costs from the FCA point forward.
CPT (Carriage Paid To named point)
The seller must arrange and pay for transport and export duties, as well as handling and loading at the main terminal but the buyer must manage their own risk (hopefully, buying their own cargo insurance). Risk transfers when the equipment is delivered to the FIRST carrier, which would be the initial loading of the goods at the origin. If you're shipping a cold MRI magnet via airfreight, it first rides on a truck to the airport—the truck is the first carrier in this example. Hauling to the taxiway (and handling at the airport) is at the buyer’s risk.
CIP (Carriage and Insurance Paid to named point)
The seller must arrange and pay for shipping, export clearance, cargo insurance (be aware that only minimum insurance is required) and handling at destination terminal if agreed upon in advance. While transport costs are covered all the way to the agreed destination, the risk of loss passes to the buyer the moment the equipment is received by the FIRST carrier. Damage during that initial “minor” leg of transit is covered by seller’s insurance, but the buyer is responsible to deal with the claim. Here’s something to think about: the outcome of any insurance claim is independent of the buyer’s obligations under the equipment contract! Unless otherwise agreed between the parties, regardless of the outcome of buyer’s insurance claim, the seller has met their delivery obligation and would be entitled to payment under the contract.
Understanding Incoterms 2010 can be difficult if you’re trying to “go it alone.” I highly recommend having a copy of the book Incoterms 2010 on hand to answer any questions – It is the publication put out by ICC that defines Incoterms. Or... feel free to contact a member of our highly skilled Block Imaging Project Management Team. With over 93 years of collective experience, the Block Team can answer your questions and handle most projects anywhere in the world!