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Q01. Define the term INCOTERMS. Why did International of Chambers [“ICC”] promulgate these terms? What it is the efficacy of these terms for the contracting parties in conducting trade and commerce? How can these terms effectively reduce the potential disputes between the contracting parties? Explain in your own words (07 Marks)
Q02. What is Risk? How can risk be mitigated by applying the INCOTERMS in the contractual agreement? (05 Marks)
Q03. Briefly explain FOB and CIF Contract? (03Marks)
Q01. Define the term INCOTERMS. Why did International of Chambers [“ICC”] promulgate these terms? What it is the efficacy of these terms for the contracting parties in conducting trade and commerce? How can these terms effectively reduce the potential disputes between the contracting parties? Explain in your own words (07 Marks)
Answer:
To facilitate commerce round the world, the International Chamber of Commerce (ICC) publishes a group of Incoterms, officially referred to as international commercial terms. Globally recognized, Incoterms prevent confusion in foreign trade contracts by clarifying the obligations of buyers and sellers. Parties involved in domestic and international trade commonly use them as a sort of shorthand to assist understand each other and therefore the exact terms of their business arrangements. Some Incoterms apply to any means of transportation; others apply strictly to transportation across water.
The International Chamber of Commerce (ICC) developed Incoterms in 1936 and updates them periodically to evolve to changing trade practices. The ICC's mission is to market open markets and ensure global economic prosperity through trade. Because it's a networked business that reaches over 6 million businesses in 100 countries, the ICC is seen as having unparalleled expertise in establishing rules to guide international trade. While the adherence to its Incoterms is voluntary, the ICC-established rules are commonly employed by buyers and sellers as a daily a part of trade transactions. Incoterms provide a universal set of rules and guidelines that help facilitate trade. In essence, they supply a standard language can use to line the terms for his or her trades. Buyers and sellers can use Incoterms during a sort of activities necessary to conduct business. Typical activities that decision for the utilization of Incoterms include filling out a sale order, labelling a shipment for transport, completing a certificate of origin, or documenting a free carrier agreement.
The rules are modified sixfold already since 1936, to bring them up-to-date with the event of international trade. the newest version, called Incoterms 2010, came into force on 1st January, 2011. The 11 Incoterms 2010 rules are presented in two distinct classes, one being the principles for any mode or modes of transport: EXW, FCA, CPT, CIP, DAT, DAP, DDP, while the opposite consists of the principles for sea and inland waterway transport FAS, FOB, CFR, CIF. it's recommended to use Incoterms 2010 after 2011, however traders might choose whichever version of the Incoterms® they need to use, but during this case, the parties of the sales contract got to clarify which version they chose.
Incoterms can assist you avoid disagreements over who carries the danger at various points within the logistics process. This helps you get the proper insurance for the amount during which you carry the danger. They will assist you avoid disputes over alleged late delivery and lower your risk of late-delivery penalties. they supply a stable risk environment by imposing certainty on a sales contract for instance using the acceptable Incoterms rules can help make sure that you get purchased a shipment. Using the right Incoterms in a world transaction helps the parties involved identify the risks that they’re responsible. At an equivalent time they will take pre-emptive steps to mitigate those risks and not wait until something goes wrong.
The wrong Incoterm can lead a corporation to misunderstand and/or misrepresent the prices, obligations and division of responsibilities that are being negotiated between the customer and therefore the seller. this will cause significant unanticipated liabilities for a corporation, which may be very costly.
More generally Companies often don’t make sure that the Incoterms within the ir sales agreements match across all the contracts involved in the transaction. When something goes wrong, the disagreements tend to specialize in risks and responsibilities that would are managed through the accurate use of an Incoterm. I even have seen this happen and it can cost companies inordinate amounts of your time and money to resolve.
Conclusion:
The primary purpose of Incoterms is to define the responsibilities and costs between two parties correctly. The seller and the buyer create a sales contract between them, and they have to carefully consider everything when it comes to duty, delivery, tax and, in some instances, insurance. Incoterms play a critical role when it comes to transferring the risk. If they are not applied correctly, the passage of risk might not be determined. Therefore, both the buyer and the seller are at risk of damages. Incoterms are the vital source of instructions for everyone involved in the delivery process. Without them, there would be a great deal of confusion and misunderstandings between forwarders, carriers and even banks.
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