Understanding where risk shifts from sellers to buyers can go a long way to guarding shippers against costly surprises – but mitigation means getting properly acquainted with Incoterms (International Commercial Terms), says Philippe de Pinchart of Röhlig-Grindrod. The company’s national training facilitator says that Incoterms “make life a lot easier for importers and exporters because of the light they shed on what has to be done”. He adds: “Once the buyer knows what the seller has arranged and paid for, the importer knows what he is responsible for and what costs he is still liable for.” And yet, although there are only 11 terms that serve to create awareness around three primary concerns – obligation, risk and cost and where the supplier/buyer division of responsibility lies – importers are often caught off guard with costly consequences, De Pinchart says. “The biggest problem is that eight out of ten times buyers don’t know what they mean. They see it as too much of a challenge to come to grips with all the ins and outs of Incoterms. That’s why we do the training, to ensure importers understand the implications and risk attached to each Incoterm as we hope it will help them select the most suitable Incoterm for each import.” In many instances, he adds, importers “will see an Incoterm on an invoice but be completely unaware of what it means”. And although incoterms are not a legal requirement, the majority of all international transactions are done using Incoterms. “This is because they give both the buyer and seller a clear understanding of what each party has to do. It takes away the grey area. As such, says De Pinchart, it’s your “frame of reference” – a universal code that effectively encapsulates all the crucial requirements that, although not mandatory, are included in the contract of sale and therefore become part of it”. Elaborating on this point, he says: “Effectively one could sell something to someone without Incoterms. For example, the seller could tell the buyer he will pay for the freight and the buyer must pay for insurance – but if there’s a misunderstanding and things go wrong it could end up in court. In that respect Incoterms take the risk away.” As fate will have it, once a buyer finds out he has used the incorrect Incoterm for a particular import and something goes wrong , it’s often too late, De Pinchart warns. Thankfully shippers appear to be coming to terms with the little three-letter codes that can have such a big impact on their bottom line. According to De Pinchart, the recent set of Incoterms hasn’t changed much, apart from a few minor amendments to certain terms, “to reflect the changing landscape of our industry”. Perhaps the most important change, he adds, is the new book issued by the International Chamber of Commerce, which owns the rights to Incoterms, to coincide with the recent re-release of the 2020 Incoterms. “It’s more comprehensive. There is an expanded set of explanatory notes for each Incoterm, the articles have been rearranged, and now they more accurately follow the sequence of sales transactions.” It’s why De Pinchart believes Incoterms should be regarded “as the driver’s licence for anyone dealing in international logistics”.
Incoterms is the driver’s licence for anyone dealing in international logistics. – Philippe de Pinchart.
