What are Incoterms used for?

Incoterms® are primarily used for determining how the sale of equipment for delivery across international boundaries will be handled and who will pay for what in the transaction. They will not address the consequences of a breach of contract or exemptions of liability. Incoterms® 2020 relate to the terms between the exporter and importer.

Incoterms® 2020 cover the following broad points:

Delivery – Incoterms® 2020 specify when seller delivers to buyer:

Risk – Incoterms® 2020 specify when risk transfers from seller to buyer. Risk passes from seller to buyer when seller has fulfilled his obligation to deliver the goods

Costs – Responsibility of costs passes from seller to buyer at a point up to which the seller is obliged to pay transport (and insurance) costs

Our seventh Incoterms® is DAP, Delivered At Place – Incoterms® 2020

The seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination.

The seller bears all risks involved in bringing the goods to the named place 
DAP can be used in any transport mode, and the risk transfers from the seller to the buyer as soon as the goods reach the named place of destination.

In DAP, Delivery at Place, the sellers is responsible for moving the goods from origin until their delivery at the disposal place agreed with the buyer ready for unloading at destination. The seller bears the risk until delivery of goods to the named place and should obtain a contract of carriage that matches the contract of sale until the agreed delivery point. If there is an extra fee for unloading the goods, the seller cannot charge it to the buyer. This term can be used for any mode of transportation.

Quick overview

What are the seller’s obligations?

• General

The buyer must pay the price of goods as agreed.

• Taking Delivery

The buyer takes the goods at the destination point.

• Risks

All risk of loss/damage from the time or end of the period agreed for delivery. If the buyer fails to clear import customs or notify time/period, the risk is under the buyer.

• Carriage

No obligation to contract a carrier.

• Insurance

No obligation to insure the goods.

• Delivery/transport document

Accepts the proof of delivery

• Export/Import clearance

Assist with export clearance. Pay for import clearance and formalities (licenses, security, official documentation).

•  Checking

No obligation.

• Allocation of cost

Pay from the time goods delivered. Unloading. All costs for assistance. Pay duties and taxes for imports. Any additional cost if does not notify the shipment date or period.

• Notices

Time or period for receiving the goods and name the point of receiving the goods.

Important points to note

DAP Incoterms® can be used for any mode of transport as well as for multimodal transport.

Buyer is responsible for import clearance and formalities (licenses, security, official documentation) including payment of duties and taxes if applicable unless otherwise agreed differently between seller and buyer.

Whilst there is no obligation for seller to insure the goods it is recommended that whilst under the seller’s responsibility and control that insurance cover is taken out.

MSM Milling is a recognised and awarded exporter that ships high quality, ready-to-use products directly to end-users in more than 15 countries around the world. MSM Milling company shares its story on how their business has been impacted by COVID-19:

We’ve seen a tremendous surge in demand for locally grown, pressed and packaged Australian auzure Canola Oil, both domestically and internationally.  Our agility to respond to the sharp increase in demand, coupled with our location alongside major transport routes, meant we could quickly upscale production and deliver additional products to our valued retail, foodservice and food manufacturing customers.

MSM Milling is based in the middle of the canola growing area of regional NSW so our location again proved its advantage during this unprecedented time. Being based in a small community, coupled with the implementing of stringent measures, has enabled us to keep producing around the clock to keep up with domestic and export demand.

There’s a concerted move by many Australian buyers to support Australian farmers and manufacturers. Director Peter Mac Smith said: “One of the positives of COVID-19 is that there might be a mature debate about food security, where we come to value our local food production more than we have done. I hope onshoring becomes one of the most spoken words as we look to the future.”

Kemala works fairly and ethically with artisan partners across Indonesia. Dian is driven by seeing the difference that her business is making for her staff and artisan partners; how they are growing together alongside the growth of the business.

Noticing the local market becoming more saturated and aware of the need to diversify risk, Dian wanted to try expanding Kemala’s sales to niche international markets. Before participating in Women Trading Globally, a short course supported by the Department of Foreign Affairs and Trade, she had read some articles and literature on best practices in exporting for small businesses, and tried to gain further insights by talking to friends who have export experiences.

For Dian, the Women Trading Globally program reaffirmed the importance of a strong USP and brand/product story. She has always known this is important, but realised it is especially true when competing internationally since “you’re trying to appeal to a new market that does not know your brand yet.” Dian also benefited from learning about building a message map, Incoterms, and export/import requirements.

After the program, Dian revisited her business plan and made revisions using the knowledge she gained from the program in order to strengthen Kemala’s operations internally. She was also selected by the Indonesian Ministry of Trade to participate in the largest annual trade fair in Indonesia – Trade Expo Indonesia 2019.

In 2020, Dian shares that at the onset of COVID-19 Kemala’s retail sales dropped significantly, and all local B2B as well as international orders were postponed or cancelled. She and her team therefore decided to:

1. focus exclusively, for the time being, on the retail domestic market;

2. strengthen presence on social media;

3. advertise on Instagram and Facebook (which they hardly ever did before);

4. join one of the biggest marketplaces in Indonesia in order to increase domestic outreach.

Sales are starting to stabilise again (even if the numbers are not as high as previous years) and for the past few months or so, Kemala Home Living has started receiving local B2B orders again.

Dian looks forward to increasing her domestic and international sales into the future, and her thoughtful approach to business along with an ethical supply chain puts her in good stead to reach her goals.

Reflecting on her Women Trading Globally experience, Dian stated:

“The WTG programme has definitely increased my confidence in exporting because I am now more equipped with the necessary knowledge and I have established connections that I know can assist me if and when necessary… I have done a few successful collaborations (participation in local trade and corporate events) with fellow WTG delegates Indonesia. I have also made new business thanks to introductions from fellow WTG delegates.… I now have more contacts from the ECA, Australian business owners, DFAT, and other WTG delegates whose knowledge and experiences I can tap into if I have any questions or when executing my export plan.”

Minister for Jobs, Investment, Tourism and Western Sydney Stuart Ayres said the India Australia Business and Community Awards (IABCA) would complement other activities designed to promote greater links with the Asia-Pacific giant.

There are over 12,000 Indigenous businesses in Australia, that contribute as much as $6 billion to the economy. While these numbers are growing, they are not growing fast enough.

Indigenous businesses can grow much more and make even more significant contribution to the Australian economy, including by engaging in international trade and expanding their markets overseas. They just need some extra capacity-building, supportive networks and a conducive trading environment.

Recognising this potential, the Export Council of Australia (ECA) and the Indigenous Network for Investment Trade and Export (IGNITE) have formed a strategic partnership.

Under a recently signed memorandum of understanding, both have committed to support Indigenous entrepreneurs and businesses in their efforts to undertake international trade and attract investment.

ECA and IGNITE will work together to deliver export readiness courses, establish supportive ecosystems, provide ongoing mentoring and access to relevant up-to-date information to boost Indigenous businesses’ competitiveness and sustainability.

Also, with government partners, ECA and IGNITE will urge relevant international organisations to incorporate Indigenous issues in their agenda, so that Indigenous peoples everywhere can participate in and benefit from international trade.

There are opportunities, including from trade agreements, such as the Australia-UK FTA currently under negotiation. The UK is a huge market. For example, the e-commerce segment of ‘food & beverages’ alone is expected to reach a revenue of US$8.5 billion in 2020. Just a small slice of that would be more than satisfying for Indigenous Australian businesses.

Indigenous Australian businesses with the potential to make their mark on the global stage, include manufactured goods that feature Indigenous botanicals and active ingredients, design and fashion labels, international aid contractors into the region, as well as defence industry contractors.

Enterprises exposed to international markets tend to be more innovative and competitive. So, we applaud and encourage the success of Indigenous businesses here and overseas. The pay-off can be significant – new jobs created, skills upgraded, and incomes increased.

Authors:

Darren Godwell, a/Executive Officer, Indigenous Network for Investment, Trade and Export Arnold Jorge, Executive Director, ECA Edge, Export Council of Australia

The Export Council of Australia therefore welcomes the 2020-21 Budget allocation of $28.6 million to implement a simplified trade system.

Australian exports by value (of both goods and services) fell by 4 per cent in the month of August. That drop, however, does not fully capture the difficult struggle many small and medium sized exporters are currently facing.