When involved in the international sale or purchase of goods, the terms that govern the relevant arrangement should always be considered in detail. The majority of the terms will be covered in the contract for the sale or purchase of those goods. Where appropriate, International Commercial Terms (known as Incoterms) may also be included. A brief introduction to Incoterms is included below, which may provide you with some clarity when considering your options as a party involved in a trade.
Firstly, you should always make sure that the shipping and delivery responsibilities of each party are agreed in advance in writing. Always be clear about the following:
- Payment terms
- Goods being bought or sold (and their condition)
- Transfer of risk and title of the goods
- Arrangement regarding transport
- Responsibility of insurance
- Customs, duties and taxes.
International Commercial Terms (Incoterms)
The practical elements of the transport of goods are covered under the Incoterms. Incoterms 2020 is the latest version to be released by the International Chamber of Commerce, replacing Incoterms 2010. They are a set of pre-defined trade codes and cover all modes of transport. While there is no legal obligation to incorporate them into your contract, they can be used to establish the responsibilities of the buyer and seller.
Parties may expressly agree that the 2020 version is incorporated into the relevant contract. This will ensure that there is no ambiguity around the terms that will apply. Importantly, parties should ensure that the Incoterms are compatible with the underlying contract. Conflicting terms that may have the potential to cause disputes should be updated or harmonised with the Incoterms. Incoterms do not cover terms such product testing, price, payment methods, force majeure, and breach of contract. Accordingly, a full review of the sale or purchase contract should be conducted to ensure that each party’s interests are recorded.
There are eleven Incoterms, seven of which are applicable to any mode of transport while the remaining four are specific to trade by sea and inland waterways. Incoterms cover a range of matters including the risk of damage to goods, the cost of transport, export and import duties and any additional document requirements.
Incoterms and Brexit
From the 1st of January 2021, specific Incoterms dealing with customs and border clearance requirements became a high priority for many buyers and sellers within the UK. As a result of the UK’s withdrawal from the EU customs union, businesses involved in the import or export of goods became directly impacted by the additional documentary requirements and by default, specific Incoterms.
The two most important Incoterms are DDP (from the perspective of a buyer) and EXW (from the perspective of a seller). An in-depth review of the Incoterms can be found on the International Chamber of Commerce’s website.
DDP (delivery duty paid) states that the seller will complete all export and import requirements. This includes any transport costs, insurances, duties, taxes and customs formalities. It is likely that many EU based sellers will resist including this as an Incoterm. This should be considered when negotiating prices, volume of goods and the remaining contractual terms.
When considering the same formalities from the seller’s perspective, they will generally favour EXW (ex works). The position under this Incoterm is that the seller will not be responsible for the collection of goods, nor will it be required to satisfy any clearance duties and fees. UK based buyers should consider this when agreeing to incorporate any Incoterms within a contract. Ultimately, UK based buyers will be responsible for the correct import documentation and any import duties.
EORI number and Brexit
Any business that imports goods from the EU into the UK will need to register for an EORI number (Economic Operators Registration and Identification number). This will enable the importing business to be identified in all customs procedures, particularly when exchanging information with customs officials. Without this number, a UK business will be unable to import any goods. Any UK business without an EORI number is able to register for one through the UK Government portal.
We hope that these explanations are helpful. If you would like specific assistance regarding your own business and its international trading activities, please feel free to contact me at the number listed below.
This blog is provided for general information purposes only. Nothing in this blog constitutes legal or other professional advice. The content of the blogs published on this website are current as of their original date of publication but should not be relied upon as accurate or suitable for any particular purpose. Professional legal advice should always be sought before relying on, or taking action relating to, the content of this article.
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Alex works on a range of company and commercial matters, including corporate formations, structuring, governance and the negotiation and drafting of commercial contracts and other commercial documents.
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