In a prior post, I revealed that I am a child of the 1980s. This post will start with a quote from the movie Fast Times at Ridgemont High: “Learn it. Know it. Live it.”
While the context of that quote was the Brad Hamilton character (Judge Reinhold) trying to get the Jeff Spicoli character (Sean Penn) to wear a shirt and shoes in a fast-food establishment, this post will focus on the terms of trade and that Irish/Northern Irish companies need to learn, know, and live: Incoterms. This is probably the first time, anywhere, that Incoterms and Fast Times at Ridgemont High have been linked, but I digress.
Incoterms are to those three letter terms common in a sales/shipment contract, like FOB, EXW, etc. In a prior post, I stressed the importance of an Irish/Northern Irish company developing, and consistently using, a standard U.S.-style terms and conditions of sale. Knowing which Incoterm to use in those terms and conditions is crucial to understanding and mitigating export risk.
Incoterms are the private international rules used worldwide in international and domestic contracts for the sale of goods and deal with (i) delivery point/who pays for shipping; (ii) when title (and risk of loss) passes to the purchaser; and (iii) who is responsible for procuring insurance on the shipped goods. US courts are familiar with Incoterms and enforce Incoterms if they are included/referenced in the contract at issue. Note that Incoterms are only enforced if the parties select them—and using Incoterms is a useful, and effective, way to allocate risk and responsibility in cross-border trade. Be sure that the contract reference to Incoterms is made to the most recent version—the Incoterms 2010.
Seven of the Incoterms can be used in a transaction that uses any mode of transport. Of those, EXW (ex-works) is the most favorable to the seller, while DDP (delivered duty paid) is most favorable to the purchaser. Four Incoterms can be used only in connection with sea transport-FOB (free on board) is probably the best-known/most common of the set, and requires that the seller clear the goods for export and ‘delivers’ them when they are onboard the vessel at the named port of shipment. The purchaser assumes all risks/cost for goods from the deemed delivery point forward.
Additional information about Incoterms can be found here (and realize the irony of linking to a site for US companies looking to export).
By learning, knowing, and living Incoterms, Irish and Northern Irish companies can mitigate their export risk, engage in smart exporting, and succeed on the U.S. market.