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As mentioned in previous articles, Mexico is the seventh agricultural exporter in the world and the number one exporter of avocados. Based on this scenario, actors involved must have clarity on the international rules to agree on the limits of the responsibility of the product in its shipment, that is, to be familiar with the Incoterms®.
According to data from the Ministry of Agriculture and Rural Development, approximately 64% of avocado exports to the United States come from the harvests of micro and small producers.
Incoterms® are a series of optional rules created by the International Chamber of Commerce (ICC) that specify obligations corresponding to buyers and sellers within the international market. They are a voluntary, authorized, globally accepted, and adhered text to determine the responsibilities of buyers and sellers in the delivery of goods under sales contracts for international trade. It is essential to recognize that they don’t specify the price, when the client will pay, or the payment method to use in the transaction. In addition, the Incoterms 2020 rules do not contemplate the transfer of ownership of goods, breach of contract, or product liability; they must consider the issues in the sales contract.
Within these international rules, there are three main things specified: the place of delivery of the merchandise, transfer of risk, and distribution of expenses; classified into four groups: E: the exporter delivers the merchandise at the point of departure; D: the exporter hands over directly to the end of arrival; F: without payment of the main transport; C: the price of the leading vehicle is in charge of the exporter.
The most recent revision of the terms, Incoterms 2020, became effective on January 1, 2020, and consists of 11 Incoterms.
Summary of the characteristics of each incoterm:
FCA – Free Carrier
• The seller delivers the goods to the carrier or another person designated by the buyer at the seller’s premises or another agreed place.
• The parties must explicitly specify the point within the agreed place of delivery since the risk passes to the buyer.
FAS – Free Alongside Ship
• The seller delivers the goods when they place them alongside the ship nominated by the buyer at the named port of shipment.
• The risk of loss or damage to the goods passes when the products are alongside the ship. The buyer bears all expenses from that moment.
FOB – Free On Board
• The seller delivers the goods on board the ship designated by the buyer at the named port of shipment or purchases goods already delivered.
• The risk of loss or damage to the goods passes when the products are on board the ship. The buyer bears all expenses from that moment.
CFR – Cost and Freight
• The seller delivers the merchandise on board the ship or acquires the merchandise already paid for.
• The risk of loss or damage to the goods passes when the products are on board the ship.
• The seller must contract and pay the necessary freight costs to bring the merchandise to the named destination port.
CIF – Cost, Insurance and Freight
• The seller delivers the merchandise on board the ship or acquires the merchandise already provided.
• The risk of loss or damage to the goods passes when the products are on the ship.
• The seller must contract and pay the necessary freight costs to bring the merchandise to the named destination port.
• The seller also takes out insurance coverage against the buyer’s risk of loss or damage to the goods during transport.
• The buyer should note that under CIF, the seller requires to obtain insurance only with minimal coverage. If the buyer wishes to have further insurance protection, he must expressly agree with the seller or make additional arrangements.
CPT – Carriage Paid To
• The seller delivers the goods to the carrier or another person named by the seller at an agreed place (the parties agree on the said place).
• The seller must contract and pay the transportation costs necessary to bring the merchandise to the agreed place of destination.
CIP – Carriage and insurance paid to
• The seller has the same responsibilities as CPT but also takes out insurance coverage against the buyer’s risk of loss or damage to the merchandise during transport.
• The buyer should note that under the CIP, the seller must obtain insurance only with minimal coverage. If the buyer wishes to have further insurance protection, he must expressly agree with the seller or make additional arrangements.
DAP – Delivered at Place
• The seller delivers when the merchandise is placed at the buyer’s disposal in the means of transport of arrival, ready for unloading at the named destination.
• The seller assumes all the risks related to the merchandise transfer to the agreed place.
DPU: replaces the previous Incoterm® DAT (Delivered At Terminal). The seller delivers when the goods, once unloaded, are placed at the buyer’s disposal at an agreed destination.
The seller assumes all risks related to the transport and unloading of the merchandise at the named place of destination.
DDP – Delivery Duty Paid
The seller delivers the goods when they are at the buyer’s disposal, cleared for import on the arriving means of transport, and ready for unloading at the named destination.
The seller bears all the costs and risks involved in bringing the merchandise to the place of destination. They must clear the products not only for export but also for import, pay any import and export duties, and complete all customs formalities.
Sources:
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