The Choice of Incoterms® Determines the Seller's Responsibilities
U.S. exporters must prevent their products from entering into a counties or markets which are prohibited by U.S. laws, or into the wrong hands for use of the product in a detrimental way. Exporters need to know and have trust in the purchaser.
At a recent workshop on Incoterms®, I prepared my usual outline, using the technique of ranking the Incoterms® from least responsibility for the seller to most responsibility for the seller. Initially, exporters like the term with least responsibility for them, Ex Works. In laymen’s terms, the seller says, “The goods are at my back door, come and get them.” As the workshop develops, exporters learn that Ex Works has risks, one being diversion into the wrong hands..
The Transaction may Determine the Choice of the Incoterms® Rule
A company in Colorado sent two employees to my workshop at the Rocky Mountain World Trade Center Institute. They dutifully took notes but made very few, if any, comments during the course of the class, until we got to the last Incoterm®, DDP (Delivered Duty Paid). Then one of them made a simple statement, “I don’t understand why everyone doesn’t use DDP.”
I responded, “Sir, with that comment, I know you understand Incoterms®.”
The DDP term places full responsibility on the exporter and very little on the importer. The exporter must jump through all the hoops and over all the hurdles including transportation and insurance to the buyer’s facility. This Incoterm® requires the seller to arrange for customs clearance on the buyer’s side.
Why the Incoterms® Rule DDP Was the Exporter's Preference
Why was this important to this company? They manufacture computer products that have the potential for misuse if the goods find their way into the wrong hands. Exporters need assurance that their products arrive at the intended destination and are only used for the purpose intended. By using DDP, the seller has complete control of the shipment to its destination and can avoid the possibility of diversion to unwanted parties or countries.