Advantages and disadvantages of Incoterms 2020: how to improve their use?

International trade bases its organization on sales contracts and a harmonized system: Incoterms. These codes determine numerous criteria for actions and responsibilities between buyers and sellers. If they do not solve all the problems that may arise among these players, it is essential to rely on the right Incoterms to facilitate your trade, in particular, through an automated solution.

What are Incoterms 2020?

In its first definition, the word Incoterm is the contraction of “International Commercial Terms”.

Incoterms 2020, which replaced Incoterms 2010, are a series of international trade rules revised every 10 years and represented by codes of a few letters. The Incoterms have been published by the International Chamber of Commerce ( ICC) and are authentic in defining the responsibilities and obligations of sellers and buyers during international commercial transactions.

However, Incoterms are not mandatory : the sales contract may be sufficient if it determines the responsibility of the seller and the buyer at each stage. But this is exactly where Incoterms help.

Incoterms thus regulate the role of each actor during the transport of goods on the distribution of transport costs and the place of delivery, which represents the point of transfer of risks from the seller to the buyer.

The advantages of Incoterms

Incoterms have certain advantages for the organization of exchanges:

• Through their simplified coding system, the Incoterms offer a truly comprehensible language between players in international trade. They thus clearly define the obligations and responsibilities of the parties involved in the sale of goods and the transfer of risks from point A to point B.

• They also reduce misunderstandings and disputes by specifying the terms of payment, delivery and the transfer of costs and risks associated with the transport of goods.

• Companies around the world use Incoterms for their international trade. So adapting to this system makes it easier to develop beyond your borders.

The disadvantages of Incoterms 2020

However, Incoterms are not a long calm river, any more than ramparts against all risks:

• First disadvantage and not the least: they only cover the obligations in terms of delivery of the goods. They therefore give no indication of payment terms, guarantees and liability of the seller or buyer in the event of damage to or loss of the goods. These aspects must therefore be included elsewhere in the sales contract.

• Finally, Incoterms represent a cost when it comes to finding consistency in practices and a fair sharing of costs. Very often, companies must therefore call on import-export professionals to ensure that sales contracts do indeed comply with Incoterms 2020.

Get a GTM to manage Incoterms

Difficult to weigh the pros and cons in the use of this device, as the advantages facilitate the management of sales abroad. Conversely, errors of choice in the Incoterms can give way to disputes.

To overcome this dilemma, a Global Trade Management solution (GTM) helps you by telling you the right Incoterms according to the products transported and the country of destination. In this way, you effectively control the risks of your operations and your exchanges with your partners. The data is also linked to all your other transport information for a better evaluation of business opportunities.

Would you like to know more about the organization of Incoterms with MyTower GTM Analytics? Ask for a demo!