Incoterms are comprised of guidelines pertaining to what sellers and buyers must do to fulfill their part of the transaction. Established by the International Chamber of Commerce (ICC), incoterms are part and parcel of international ocean freight services. Since incoterms can be used to resolve disagreements in the event of a dispute, the chosen incoterm must be decided and agreed upon by both buyer and seller. In order to prevent misuse of these rules and guidelines, this post aims to highlight several common incoterms mistakes that can be avoided. Read on to find out more!
Incoterm Didn’t Meet Bank’s Security Requirements for Payment
This mistake may occur when international payment methods such as a Letter of Credit is used. LOCs state that payments can only be made/received after the necessary documents are submitted to the bank (to inform officials that the conditions of the transaction have been met). Due to its safe and secure nature, there seems to be a lack of complete trust between the seller and buyer.
It is important to note that F-incoterms should not be used to address these issues because the buyer will be held responsible for transporting the merchandise. This means that this party has the power to intervene by issuing a Bill of Lading, which prevents the seller from getting paid.
If you are the seller, and the payments are to be made via a Letter of Credit, consider using C-incoterms instead. The two most important documents required to effect payment: the commercial invoice and the Bill of Lading, will be in your control.
Not Considering how EXW Incoterm (EXW) may Affect Export Procedures
Under an EXW incoterm, the seller has the least responsibilities, which often ends after the merchandise has been packaged. From then on, the buyer takes over by exporting the goods from the origin country and maintain communications with export authorities. This process, however, may not be straightforward for the buyers, especially if they are unfamiliar with the export process of the country of origin.
Another potential problem is that shippers may not always permit non-authorized personnel facilitate loading on their grounds due to liability reasons. As a result, the shipper may have to take charge of the loading, which is contrary to EXW’s stipulations. If the cargo gets damaged in the process, determining the responsible party may prove to be challenging. At the end of the day, having the buyer take control of this may then be impractical and unrealistic for certain transactions.
Rushing to Commit to DAP Incoterm and DDP Incoterm
Under DAP Incoterm (Delivered at Place) and DDP Incoterm (Delivery Duty Paid), the seller is often responsible for paying arrival expenditures at destination, including local taxes and duties like VAT, GST, among others. In most countries, it is simply more efficient to have the consignee handle the customs clearance process. They are, however, not legally obliged to do so and that responsibility may fall back onto the seller. If you are the consignee, it is best to err on the side of caution in case of clearance issues caused by shipper’s error. This means that it could result in a delay in cargo delivery as well.
If you are looking for a team that can simplify ocean shipping for your company, you have come to the right place. Don’t hesitate to schedule a consultation with STC Logistics to learn more!