What are the limitations of incoterms?

Answer 1

Incoterms® 2010 regulate:

The distribution of documents.

The conditions for delivering goods.

The cost of transporting goods.

The responsibility of risk in shpping the goods.

Incoterms® 2010 do not cover:

The conditions of the sale.

The condition of the goods.

The warranty of the goods.

The payment or nonpayment of the goods.

Intangible products such as computer software.

Answer 2

What do incoterms rules do?

Incoterms are presented in 3 letters, e.g. EXW, FOB, DPU. There are, as at current (the year 2020), 11 of these terms which are designed to reflect business to business practice in contract of sale goods. Here is a summary of what these terms do:

They show obligations of the parties

With these terms it is easy to know who does what between the seller and the buyer, for instance who arranges carriage or insurance. A term like CIF –Carriage Insurance and Freight tells the seller to obtain insurance (minimum) cover complying with institute cargo clause. Incoterms also handles issues like who obtains shipping documents.

They indicate a point where risk is transferred from the seller to the buyer.

The idea is that the moment the goods are considered “delivered” the risk in those goods has been transferred.

Costs

Which party is responsible for which cost, for example, cost relating to transport, packaging, loading or unloading etc

What incoterms do NOT do.

The one thing you have to understand when dealing with incoterms is that they are not a substitute of a contract of sale. These rules are not designed to deal with a particular type of goods of trade.

Incoterms rules will therefore NOT:

1. Specify whether or not a contract of sale exist

2. Specify the type of goods you are dealing with

3. Tell you the time, place, method or currency of payment

As a party getting into these import export or international sale of goods contract, you truly have to be good with your sale of goods contracts especially the provisions you wish the agreement to deal with and remember, incoterms 2020 rules are not in themselves a contract of sale.