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Abstract
In the latest revision of INCOTERMS, the International Chamber of Commerce (ICC) makes it abundantly clear which international commercial terms ("INCOTERMS") are intended for maritime intermodal usage and which are not. Nonetheless, many shippers continually misuse INCOTERMS in their shipping transactions, leaving themselves vulnerable and lacking control in their supply chains. After a brief historical background on shipping terms, we elucidate some key changes from INCOTERMS 2000 to INCOTERMS 2010, and pay particular attention to the oft-misunderstood and misused term FOB. We express how using EXW or FCA might close this vulnerability gap and give the buyer greater visibility, control, and command of their international shipping transactions. We also proffer an explanation for the continued misuse of INCOTERMS by reviewing some of the conflicting demands and expectations banking institutions incorporate into guarantees and letters of credit that are incongruent with the latest version of INCOTERMS. Lastly, we proffer new research avenues borne from our analysis of the intricacies of international trade and banking practices vis-à-vis INCOTERMS and risk management.
A Brief History of INCOTERMS
INCOTERMS were developed by the International Chamber of Commerce (ICC) and were first codified in a pre-INCOTERMS edition of 1923 (International Chamber of Commerce 2010a). The 1923 edition consisted of six terms: 1) FOB-Free On Board; 2) FAS-Free Alongside Ship; 3) FOT-Free On Truck; 4) FOR-Free On Rail; 5) CIF-Cost Insurance and Freight, and; 6) C&F-Cost and Freight (International Chamber of Commerce 2010b). These terms were subsequently released as the first revision of INCOTERMS in 1936. Although it is well-known that international trade had been transpiring over several millennia (Bergami 2012), INCOTERMS came into being to address the problem of interpretation amongst trading partners. INCOTERMS were crafted to harmonize the world's maritime traders and their shipping policies; reduce the number of disputes between trading partners, and; to clearly define dyadic responsibilities (e.g., costs, risks, documentation, contracting for transport, etc.) between buyers and sellers (Stapleton and Saulnier 1999, 2000).
Soon after the launch of ICC's INCOTERMS 1936, an alternative set of delivery terms was promulgated in the USA called the Revised American Foreign Trade Definitions (RAFTD) of 1941. The original RAFTD were issued in 1919 (Bergami 2012), and the 1941 revisions were subsequently incorporated into the 1951 Uniform Commercial...