Drafting tips when using incoterms

Off the back of my last blog it occurred to me that although many exporters understand that incoterms must be used and the importance of these, for those still indulging in the hand shake or bush lawyer drafted export agreement, how to express the incoterm in the contract may still be a mystery.

When choosing the appropriate incoterm for your transaction you need to make sure of the following:

• That the term matches the mode of transport you are using, ie. there is currently a differentiation between shipping terms and other modes of transport (eg. air).
• That you have nominated either the port of despatch or port of destination depending on what term you are using. No good saying FOB – is it FOB Melbourne Port or FOB Sydney Port? Big difference in freight costs for you if you thought you only had to deliver to the wharf in Melbourne but your importer’s ship is waiting in Sydney.
• That both parties are clear on the meaning of the incoterm you have chosen, as although the terms are meant to be accepted internationally, some people still get confused so it is a good idea to actually reiterate the definition of the term in your contract and the version of the incoterms you are using, eg. incoterms 2000.

An example of a clause for an EXW delivery is as follows:

“The Supplier sells the Goods to the Distributor on the basis of EXW, from its nominated warehouse address and is taken to have delivered the Goods when they are ready for collection from the Supplier’s door (“Delivery”). The Distributor is responsible for arranging for collection of the Goods and for payment of all transportation and insurance cost from the seller’s door.”

So the rule of thumb when drafting your incoterm into an agreement is to always think of where, what and how? You can never go into too much detail when describing what your price includes.

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Lynda Slavinskis is an outgoing, intuitive and commercially savvy lawyer. She has worked in-house at Sussan Corporation and Tattersall’s and now assists small and medium businesses with import, export, leases, franchising, employment and general business advice as principal solicitor of Lynda Slavinskis Lawyers & Consultants. Lynda is on the Victorian State Government’s Small Business Advisory Council.