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  • Bigger possibilities and revenues with competence on Incoterms® 2010

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    ICC (The International Chamber of Commerce) who is behind the international rules of delivery terms; Incoterms® 2010 has through their National committees done a survey revealing the use of Incoterms® 2010 the last three years  were 35 countries participated ended.

    Conclusions of the survey reveals that most companies in these countries are using the latest version of Incoterms when trading and that FCA (Free Carrier) and DAP (Delivered at Place) are widely used. Users of Incoterms also seem to have understood that the maritime rules are inappropriate for containers.

    Yet we need to notice that no other delivery terms makes as much confusion and problems as EXW (Ex Works) and DDP (Delivered Duty Paid). If we were to calculate the damages and unnecessary costs that EXW and DDP brings to companies around the world (Norwegian included) many more would stop using them instantly.

    Strategic decisions behind delivery terms agreed in your contract
    Using EXW is not necessary wrong, but many would argue that it is more for domestic use. When selling on EXW terms you are not an Exporter according to Incoterms® 2010. Your customer will be both exporter and importer and therefore he or she needs to take care of all the documents and licenses required both from the exporting and importing country.  One of several issues using EXW is selling EXW without VAT because of a foreign buyer. You might end up with no proof of the goods ever leaving the boarder.  If the customer "forgets" to stop by the boarder or has vanished, the seller ends up paying the tax bills.

    If your company have a need to sell at lowest possible price (and customer can get better transport rates or are better fit to bear the risks) FCA could be a better alternative. FCA gives the seller the possibility to make a delivery on their own premises or at the boarder making sure the goods are cleared for export. The buyer takes all the costs and bears the risks for the transport and import.

    Trying to0 hard can also be wrong
    Having a demanding customer, being in a competitive market or just wanting to make better deliveries than what you are really capable of, are familiar to many companies. This can get you in a situation where you promise to deliver at customer’s sight which in reality means DDP. Doing a DDP delivery doesn’t only make you an exporter but all of a sudden you are an importer in the country of your customer! Then you need to raise the questions whether you can or should take upon yourself the costs and most importantly the risks.

    Important questions to rise before making a choice in delivery
    Do you have proper licenses in order to be an importer?  Can you handle duties and taxes that may apply? Do you know the infrastructure and have a good transport network in your customer’s country? What about the risk’s when it comes to corruption, delays and bureaucracy that may appear in customs? What about the political risks in the importing country? If your goods are being transported by ship from Norway to Indonesia, will you be able to wait for payment until it reaches the customer after 35 days at sea and another 5 to 10 days in customs and on the roads?

    Conclusions
    Conclusions of ICC and my own experience working with Incoterms, are that companies should use the rule’s textbook and guidance of each Incoterms rules when looking into new markets or new customer’s . Then the rules of Incoterms becomes a tool that will strengthen your negotiations and better your possibilities, bringing you higher revenues and bringing your customer bigger value.

    Written 21.01.2015 by
    Maria C. Lundstad Aulie
    Senior Adviser Innovation Norway
    22 00 26 83

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