An experienced exporter and an equally experienced importer enter into an international sales contract. They agree on price, the applicable Incoterms® rule and deadlines. The party contracting for transportation (could be the seller or buyer depending on the selected Incoterms®) hires a very experienced forwarder who books the shipment with a very experienced carrier. Still, something goes wrong. Given the mechanical nature of today’s electronic commerce, a simple error may cause a cascade of consequential problems before anyone realizes it. Results may include detained shipment, ruined supply chain planning and delayed payment.
How could this happen with these experienced players? The answer is that there are actually two contracts involved. The sales contract describes obligations that the seller and buyer have to each other. The transportation contract describes obligations between the carrier and the party contracting for carriage. Bad things happen when these contracts do not align, and the parties to one do not necessarily understand the obligations set forth in the other. To prove my point, just ask a forwarder and a sales contract lawyer to define “delivery.” You will be amazed at the difference.
Transportation contracts can be quite involved with surprising liability limitations. To this add insurance, another discipline with its own particular vocabulary and practices. Failure to understand all of these puts sellers and buyers at risk of unintended and even unforeseeable consequences.
The international Chamber of Commerce has developed a solution. Titled Transport and the Incoterms® 2010 Rules, this report examines sales contracts from a carrier/forwarder perspective. Each seller-buyer Incoterms® task is spelled out in terms of what is expected of the service providers. To complete the interchange, typical shipping practice is explained for the benefit of sellers and buyers. Together, this mutual understanding will help bridge the gap between expectations and execution.