INCOTERMS IN INTERNATIONAL BUSINESS

1) CONCEPT:

TERMS:"Conditions under which an action may be undertaken or agreement reached; stipulated or    agreed-upon requirements"*

COMMERCE:"The exchange or buying and selling of commodities on a large scale involving transportation from place to place "**

CHAMBER OF COMMERCE:"An association of businesspeople to promote commercial and industrial interests in the community"***

CUSTOMS:"The official department that administers and collects the duties levied by a government on imported goods"****

2) QUESTION:What are the functions of INCOTERMS in International Business?

ANSWER:Incoterms are a set of rules commonly used in International Business. They seek to avoid or reduce conflicts between the parties (Exporters-Sellers and Importers-Buyers).

The effect of Incoterms is limited with the scope of the rights and obligations of the buyer and seller respect with the delivery of goods sold which are only tangible assets, because the services do not enter in this classification.

According with all aspects raised by the International Chamber of Commerce*****, I will mention all the major functions performed by the Incoterms. These terms define in particular: the transfer of costs and expenses, the transfer of risks and the place where deliver the goods. All above mentioned mean that the sellers know exactly when and where they should bear the costs and expenses of delivery; the buyers know exactly at what time and in which place, they should bear the risks of losing goods during the delivery; and finally these Incoterms specify the exact place where the seller must deposit the merchandise.

At this point is important to mention that according with the need to adapt Incoterms rules to contemporary commercial practice, the International Chamber of Commerce has modified some times these rules from  1936 to 2000. This year the International Chamber of Commerce, is planning to launch in mid-September  the new version Incoterms 2010 and come into effect on 1 January 2011.

In the official website of the International Chamber of Commerce says: "The latest revision of the Incoterms rules reflects major developments and changes throughout the last decade, such as the increased importance of cargo security and the deletion of the former US shipment and delivery terms.

In this version the rules have reduced from 13 to 11. 

The 11 Incoterms rules are:

EXW: Ex Works

FCA: Free Carrier

CPT: Carriage Paid To

CIP: Carriage And Insurance Paid To

DAT Delivered At Terminal

DAP: Delivered At Place

DDP: Delivered Duty Paid

FAS: Free Alongside Ship

FOB: Free On Board

CFR: Cost And Freight

CIF: Cost, Insurance and Freight

In addition to the 11 rules, Incoterms2010 includes:

•extensive guidance notes and illustrative graphics to help users efficiently choose the right rule for each transaction

•new classification to help choose the most suitable rule in relation to the mode of transport

•advice for the use of electronic procedures

•updates on security-related information requirements•advice for the use of the Incoterms 2010 rules in domestic trade."******
To conclude this point is important to remenber that international contracts, is a daily reality for many companies around worldwide. Most of the times, these operations are operations successfully and without any complications, but sometimes, things do not go as expected. Doing a deeply  analysis of this situation, I came to the conclusion that companies must follow 5 basic steps to avoid legal and economic problems, these steps are:
1) To have a writing contract: This serves as proof that an agreement has been made, and serves as reference to identify which parts of the obligations have been met, and how to comply with these parts.
2) Product Description: Specify the characteristics of the goods to be bought or sold, because complaints may arise, and these will be made by confronting the goods with their description.
3) Choice of Incoterms and form of payment: Companies must choose the best incoterm and form of payment for both buyer and seller. It is highly advisable to choose the correct Incoterms, and above all, that mention of which terms are concerned.
4) Inspection of goods: It is advisable to inspect the goods to ensure they arrive in perfect condition at their final destination, it is often advisable to take photographs.
5) Establish the form of solution of potential disputes: In case of arise legal problems companies should specify how to solve it and this can be done through the courts or international arbitration

3) POINT OF VIEW: In my opinion, the Incoterms are the backbone of International Trade. A good knowledge and use of Incoterms allows companies to reduce costs, gives them more bargaining power, allows them to manage and to reduce risks and helps them to define the strategy and action in the process of sale and buy worldwide.

I find very important that the International Chamber of Commerce makes revisions constantly to Incoterms because, as I mentioned before, all these terms should be reviewed, analyzed and adapted to contemporary business practices, because is very important adapting to new realities of International trade, for that reason we have the Incoterms 2010, which in my opinion are one of the most successful revisions of Incoterms in a long time.

The (ICC) International Chamber of Commerce has reviewed every ten years each one of the latest versions of Incoterms. Following this good work, the ICC this year will offer us a new version of Incoterms, which come into force in 2011

I think that the International Chamber of Commerce in addition to reviewing and publishing, should explain to companies the proper use of these terms and rules. What I mean is the following: not only it must explain what is an Incoterm, but how companies should use and what are the recommendations of use depending of the type of business to be conducted

All this is because every day around the world companies misuse these terms, to give clear examples many times we can find companies that closed contracts under a FOB term and the merchandise is shipped by air, another example is when companies make a negotiation under the EXW term and the seller loads the goods into the truck.

Finally I think that for the better understanding of Incoterms 2010, International Chamber of Commerce, should say the ideas and motives that led it to introduce this new version of Incoterms 2010, in order to obtain a more global and strategic vision of how to use them.

________________________________________________________________

*Oxford Dictionaries.(2010).Terms.[Online]: http://oxforddictionaries.com/view/entry/m_en_us1297843#m_en_us1297843
**Merrian Webster Dictionary.(2010).Commerce.[Online]:
http://www.merriam-webster.com/dictionary/commerce
***Merrian Webster Dictionary.(2010).Chamber of Commerce.[Online]:
http://www.merriam-webster.com/dictionary/chamber%20of%20commerce
****Oxford Dictionaries.(2010).Customs.[Online]: http://oxforddictionaries.com/view/entry/m_en_us1237847#m_en_us1237847
*****Iccwbo.(2010).[Online]: www.iccwbo.org/Incoterms/index.html?id=34848
******Iccwbo.(2010).[Online]: http://www.iccwbo.org/Incoterms_history/






-Image 1: Getty Images.Shipping containers stacked on quayside.(2010).Available at: http://www.gettyimages.com/detail/85393687/Photographers-Choice
-Image 2:Iccwbo, Incoterms 2010.Covers.(2010).Available at: http://www.iccwbo.org/Incoterms_history/