The Logic Of Incoterms

Incoterms are a set of rules which define the responsibilities of sellers and buyers for the delivery of goods under sales contracts. first published by the ICC in 1936, the Incoterms rules are revised from time to time. the latest revision came into force in January 2011, replacing the version published in 2000. Sabyasachi Mukherjee explains the terms and put them in the context of current global trade and commerce.

- Sabyasachi Mukherjee

Since its inception in 1936 the ubiquitous INCO term (International Commercial Terms) has come a long way in promoting international trade by bringing clarity and transparency to transactions. As logistics service provider some understanding of international trade would help in making logistics execution easier. Generally, we tend to concentrate on logistic execution, seldom realizing that logistics by itself does not have any existence. The need of logistics is derived out of the transaction between the buyer and the seller. Hence understanding the context in which logistics operates is deemed necessary.

Think of a scenario where, the buyer and seller get in touch with each other and make a transaction. This transaction could be for selling and purchasing of ‘IT services’. In such circumstances the need of logistics does not arise. The seller raises an invoice on the buyer with the cost of the services rendered. This transaction could be across borders, but it involves in buying and selling of intangible services. There is no tangible product involved hence it does not qualify for a transportation activity.

So, when there is a transaction, and it involves tangible items, this translates into a situation where logistical support is required. Apart from the transfer of title, the buyer would also like to take physical control of the goods. Therefore, he would like the goods to be transported to a place where it would be under his jurisdiction. In such transactions the terms on which the deal was agreed upon, is specified. In the commercial invoice which was issued by the seller, the INCO terms mentioned, clearly demarcates the tasks and responsibility that would be shared between the buyer and the seller.