Decommissioning - Logistics WA

Incoterms and your logistics strategy

Incoterms are perhaps the most critical element to a Logistics strategy. Short of Logistics infrastructure selections I can’t think of any one element that can more influence on logistics success or failure.

When discussion logistics strategy with customers, I am often surprised that organisations are unaware of selected into terms or are unaware of incoterms full stop. Often clients will lament about cargo being stuck at some foreign port only to have me explain to them that to a large part they have a part to play in this situation by selecting the wrong term. 

Incoterms are a set of rules defining the terms of sale. Furthermore, people use it all over the world. Also, these rules share the costs and responsibility between the buyer and the seller. They are used while transporting goods from the seller to the buyer.

The International Chamber of Commerce (ICC) establish the Incoterms rules. The article below provides a good grounding on the 2020s version of Incoterms. I encourage all organisations that have a reliance on Logistics (I can’t think of one that doesn’t) to be at least aware of Incoterms and if possible understand the key terms.

Final thoughts

-Organisations should never have a “default” Incoterm.

-FOB does not transfer to Air Cargo. FCA, therefore, is your “friend”.

-FCA should be used for materials in a time-critical installation sequence.

-For Australian Goods receivers always be implicit in your PO’s/Vendor agreements about Quarantine Clearance. Many vendors will not prepare materials for Quarantine compliance into Australia unless directed (paid)!

FCA rules

FCA is the most common Incoterms rule (approx. 40% of international commercial operations). It is a very versatile rule that allows the delivery of goods to various places (eg address, terminal, port, airport, etc.), which are mostly located in the buyer’s country.

The Committee decided that the FCA rule will provide for two possible places of delivery.

A first variant is a place belonging to the seller (e.g., his warehouse, factory, yard). Delivery is considered complete when the goods are physically transferred (after loading) to the care of a courier or other person designated by the buyer.

However, the second option applies to the place indicated in the contract, which does not belong to the seller (e.g., seaport, terminal). In this situation, the delivery is considered to have been made after the goods have been handed over to the carrier, on the means of transport sent by the seller. It should be noted that unloading goods from the means of transport is not the responsibility of the seller.

Incoterms – CIF, and CIP

Incoterms 2020 aligns different levels of insurance coverage in Cost Insurance and Freight (CIF rules) and Carriage and Insurance Paid To (CIP).

Carriage with own means of transport – FCA, DAP, DPU, DDP

Incoterms 2020 includes arrangements for carriage with own means of transportation in FCA, Delivery at Place (DAP), Delivery at Place Unloaded (DPU), and Delivered Duty Paid (DDP).

Incoterms 2020 – discussions

It may seem that changes to existing Incoterms are not much, but Incoterms 2020 may be easier to understand than Incoterms 2010. The commission wanted to avoid situations where Incoterms are misinterpreted and misused, which is often associated with costly consequences. 

The significant differences between Incoterms 2010 and Incoterms 2020 include primarily:

  • Bill of lading in the FCA Incoterms rule;
  • Cost-sharing issue;
  • Organization of transport by the seller’s or the buyer’s means of transport, applying the FCA, DAP, DPU, or DDP rules;
  • Change of Incoterms DAT to Incoterms DPU;
  • Including safety requirements in the obligation and transport costs;
  • Addition of explanatory notes for Incoterms users