Have you ever sagely nodded your head in a meeting when the logistics guys insist on buying goods DDP, only to rush out and google what that actually means?
Well, DDP is an Incoterm. Incoterms are a nifty shorthand means of agreeing who is responsible for the costs and risks associated with the international sale of goods. With a three letter acronym you can confirm when risk in the goods passes from the supplier to the recipient, and who is responsible for transporting, insuring, and paying duties on them.
The first set of Incoterms was issued in 1936 by the International Chamber of Commerce (ICC), with the current version coming into effect in 2011 (Incoterms® 2010). There are currently 11 Incoterms, 7 of which can be used for any mode of transport, and 4 of which only apply to transport by water.
There are lots of handy tables online which summarise the key elements of each Incoterm, but for the detail you’ll need to hand over some cash to the ICC. The very keen can also pick up a snazzy Wallchart or Desk Pad.
Here are our 5 top tips for using them properly:
- Be clear on which set of Incoterms you wish to use. They get updated occasionally, so define the edition you are using. Use ‘[Incoterm, delivery point] Incoterms® 2010’.
- Name a specific delivery point or port. All of the Incoterms require you to state a point of delivery, and you should be specific – just noting ‘Australia’ could mean your goods end up in Perth when you want them in Sydney. Instead use ‘[Incoterm] Marque Lawyers, Level 4, 343 George Street, Sydney, Australia Incoterms® 2010’.
- For most Incoterms the place you name is where risk passes and delivery takes place. But for CPT, CIP, CFR and CIF, the places where risk passes and the delivery occurs are different, so you need to specify both.
- Incoterms state when risk in the goods passes, but not title. You’ll need to specify that.
- Remember Incoterms don’t actually replace a contract. You’ll still need to confirm what the goods are, the price, consequences of breach, termination rights, governing law etc.