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1 INCOTERMS 2020 Introducción
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1 INCOTERMS 2020 Introducción

Introduction to Incoterms 2020

Overview of the Module

  • Rodolfo Carreño welcomes participants to the Incoterms 2020 module, which consists of several videos aimed at understanding the concept of five terms.
  • The module will cover definitions and importance of these terms, as well as a step-by-step guide for international buying and selling operations.

Understanding Incoterms

  • There are 11 total Incoterms, with FOP and SIF being two commonly known examples. Participants will learn how to choose the best term for their business needs.
  • The term "Incoterms" stands for International Commercial Terms, which standardize logistical aspects of international sales.

Importance of Incoterms

Standardization in Logistics

  • Incoterms provide standardized rules that simplify logistics in international transactions, preventing confusion between buyers and sellers regarding responsibilities.
  • Without these standards, each transaction would require negotiation on all logistical details, making international trade complex compared to local sales.

Simplifying International Trade

  • Using an Incoterm allows parties to clearly understand their rights and obligations without needing extensive negotiations on logistics.
  • This clarity facilitates smoother transactions across borders by establishing common ground despite potential language barriers or conceptual differences.

Nature and Flexibility of Incoterms

Voluntary Nature

  • Unlike laws that are mandatory, Incoterms are voluntary agreements based on usage and customs within trade practices.
  • Users can opt for previous versions of the terms if they find them more suitable; current updates do not invalidate older rules.

Updates from ICC

  • The International Chamber of Commerce (ICC), based in Paris, publishes updates approximately every ten years reflecting current trade practices.
  • Recent updates consider changes such as the rise of e-commerce since earlier decades when such concepts were less prevalent.

Evolution of Transportation and Incoterms

Modernization of Transportation

  • The evolution of transportation is highlighted, noting the increase in container ship sizes to 10,000-12,000 containers compared to smaller vessels in the past.
  • Updates in transportation methods reflect changes in commerce, insurance, and freight costs; however, using the latest Incoterms is not mandatory.

Usage of Previous Incoterms

  • Businesses can continue using older versions of Incoterms (e.g., 2010) even as new versions are released (2020), provided both parties are familiar with them.
  • It’s recommended to specify the version of Incoterms used in contracts or communications for clarity on obligations.

Importance of Specifying Terms

  • Clearly stating the year/version of Incoterms helps define responsibilities between buyers and sellers; this includes specifying terms like FOB (Free On Board).
  • The latest version available since January 1, 2020, can be accessed through resources like the International Chamber of Commerce website.

Key Aspects Defined by Incoterms

  • Incoterms outline logistical aspects such as delivery locations and risk transfer between buyer and seller during international transactions.
  • The place where risk transfers is crucial; for example, if a shipment arrives at a designated port (like Callao), responsibility shifts from seller to buyer upon arrival.

Risk Transfer Implications

  • Once goods reach the agreed delivery point (e.g., Callao), any subsequent loss or damage becomes the buyer's responsibility.
  • Buyers must pay for goods even if they suffer losses after risk has been transferred; understanding these terms is vital for financial planning.

Complexity in International Transactions

  • International sales involve more complex logistics than local transactions due to additional factors like customs operations and transport risks.
  • Clarity on cost-sharing between exporters and importers is essential; each party should understand their financial obligations within the transaction flow.

Importance of Maritime Transport in International Trade

Dominance of Maritime Transport

  • Approximately 90% of international trade transactions occur via maritime transport, highlighting its critical role in global commerce.
  • Emphasis on the need to pay close attention to freight terms associated with maritime transport due to its prevalence.

Understanding Freight Terms

  • Introduction to various freight terms that dictate the responsibilities and costs involved in shipping.
  • Explanation of liner terms, which encompass pre-transport and post-transport operations such as loading, transportation, and unloading.

Breakdown of Freight Costs

  • Clarification that the cost quoted for a freight under liner terms includes loading, transportation, and unloading processes.
  • Discussion on "Free In" (FI) terms where the quoted price covers only transportation and unloading; loading costs are typically borne by the seller.

Additional Freight Terms Explained

  • Description of "Free Out" (FO) terms indicating that the buyer is responsible for unloading costs at destination while other costs are covered.
  • Explanation of "Free In and Out" (FIO), where only transportation is covered by the freight cost; both loading and unloading must be paid separately.

Practical Application of Freight Terms

  • Importance of understanding these freight terms as 90% of international operations involve maritime shipping negotiations.
  • Noting that most container shipments will use liner terms rather than FI or FO due to industry practices.

Contextual Use Cases for Different Terms

  • Highlighting that FI, FO, and FIO are primarily used in bulk cargo negotiations rather than standard container shipments.

Cargo Operations and Insurance in Maritime Transport

Overview of Cargo Loading Operations

  • The process of loading cargo onto ships involves both transportation to the vessel and stowage, which is referred to as "estiva." This operation can be quite costly due to the need for equipment like belts and suction systems.
  • When transporting bulk goods, whether liquids or solids (e.g., oil), specific negotiations regarding freight terms are necessary.

Freight Terms and Negotiations

  • For bulk transport, freight terms such as "free in and out" (FI/FO) must be negotiated; however, container shipments follow a standard term known as "liner term," which does not require negotiation.

Insurance Requirements in Shipping

  • Insurance is not mandatory for all shipping operations; only two Incoterms (CIF and CIP) require sellers to purchase insurance for buyers.
  • The difference between Incoterms 2010 and newer versions includes specific insurance requirements, with CIF mandating basic coverage while others may require more comprehensive policies.

Importance of Purchasing Insurance

  • Despite being non-mandatory, best practices recommend purchasing insurance for several reasons:
  • To ensure peace of mind by protecting goods during transit from maritime risks.
  • The cost of insurance is relatively low—typically around 0.1% of the cargo value—which is marginal compared to overall logistics costs.

Legal Implications of Not Having Insurance

  • In Peru, SUNAT encourages the use of insurance through coactive recommendations. If no insurance is purchased, importers must sign a declaration stating this fact.
  • Without insurance, SUNAT calculates taxes based on a virtual insurance value that could significantly increase tax liabilities—up to 2.5%—compared to actual premiums.

Conclusion on Best Practices

  • Good international trade practices advocate for securing insurance regardless of its non-obligatory status under most circumstances.

Understanding SIF and SIP in Bulk and Containerized Goods

Differences Between SIF and SIP

  • The SIF (Seguro de Importación Franca) is generally related to bulk goods, while the SIP (Seguro de Importación por Contenedor) pertains to containerized merchandise.

Price Fluctuations in Bulk Goods

  • Prices for bulk commodities like corn, wheat, iron, barley, and copper are often negotiated on stock exchanges. These prices can fluctuate significantly during transit.
  • As the value of bulk goods changes over time—typically 30 to 40 days in transit—insurance costs will also vary accordingly.

Insurance Types: A, B, C

  • For general cargo such as household appliances, insurance type A is mandatory. Type C is recommended for bulk goods to minimize exposure to price fluctuations.
  • Type A insurance covers all risks except those explicitly excluded in the policy (e.g., war or terrorism). It's crucial for users to read their policies carefully.

Understanding Coverage Types

  • Type B serves as an intermediate option between types A and C. Type C offers basic coverage primarily related to damages occurring on the vessel itself.

Causes vs. Effects in Insurance Claims

  • Insurances cover causes rather than effects; for instance, if a container sinks due to "echazón" (the act of jettisoning containers), it may be covered under basic insurance.
  • Echazón occurs when a ship's captain decides to throw overboard containers during severe storms to regain balance. This action could lead to claims if properly insured.

Negligence Exclusions

  • If a container sinks due to negligence—such as improper securing by the transporter—it typically won't be covered by insurance policies.

This structured overview provides insights into key concepts regarding shipping insurance types and their implications for both bulk and containerized goods.