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“Delivery” has a specific definition in Incoterms® 2010
The scope of Terms of Sale (now called Rules) represented by Incoterms®, those most commonly accepted in international trade, is the delivery of goods. Incoterms® set out the obligations, risk, and cost between the seller and buyer in respect of the delivery of the goods which are the subject of the contract between the two parties. For a contract to be consummated, the goods must be “delivered.”
You may think of “delivery” as a package dropped off at your front door or a truck pulling into a receiving dock and its contents being unloaded... You sign for the package or pallets and think the goods have been delivered. But that’s using the word “delivery” in the vernacular, our common, everyday understanding and use of the word.
With Incoterms® 2010’s rules, “delivery” has a very specific definition. This is important to understand because much derives from it. We stress here that in any application of an Incoterm®, the reader should have available and refer to International Chamber of Commerce (ICC) publication No. 715, Incoterms® 2010.
Delivery is completed when the seller has made the goods available to the buyer (at the disposal of the buyer) at the place or with the carrier agreed upon, at the time or within the period of time agreed to by the parties. In effect, this may be defined as the seller turning over effective control of the goods to the buyer. Unlike our vernacular use of the word delivery, in an Incoterm® delivery, the buyer may not actually have the goods in its physical possession. For example: in an FCA rule, delivery is completed when the seller has turned over the goods to the designated carrier or agent of the buyer who is located in the seller’s country. The buyer is still thousands of miles away from its goods and may not see them for days or weeks; however, the agent acting on behalf of the buyer has effective control of the goods.
Provisions A4 and B4 within each Incoterm® rule clearly define the obligations of each party in respect of delivery and when delivery is completed. In the CPT rule, delivery is completed when the seller has turned over the goods to the carrier it has contracted with and paid to transport the goods to an agreed upon destination place in the buyer’s country. Each of the eleven Incoterm® rules stipulates the conditions for delivery under that individual rule.
Within each Incoterm® rule, there are ten provisions for the seller and ten for the buyer. It is important to understand that other provisions beyond A4/B4 may have an effect on whether delivery is completed. For example, without the seller giving proper notice (as required in A7), the buyer might never know the carrier, route, and arrival of the goods. The seller merely dropping the goods off with some carrier and never telling the buyer about it certainly does not constitute delivery.
Incoterms® provide that the point at which delivery is completed, risk of loss and damage shifts from the seller to the buyer. Further, under Generally Accepted Accounting Principles (GAAP), delivery (as defined by the contract’s term of sale) is a crucial component in determining when revenue may be recognized for the sale of goods. A reminder is appropriate here… Incoterms® do not now nor have they ever spoken to transfer of title or ownership of the goods. Title or ownership is a matter that must be addressed separately within the contract.
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It is vital for you to fully understand the changes to Incoterms® for you to negotiate the best deal. The best and most efficient way to do this is through one of our one-day Incoterms® 2010 training seminars. For more information, check our website, download a .pdf brochure, or call 800-631-3098.
About Unz & Co.
Unz & Co. (Division of WTS Corp.) / 333 Cedar Ave., Building B, Suite 2 / Middlesex, NJ 08846