The Incoterms are a set of instructions and rules established by the International Chamber of Commerce (ICC), which determine the responsibilities for freight, insurance, logistics and duties of cargo negotiated in Foreign Trade between the exporter and importer.
These instructions change every 10 years. Currently, the terms that are in force are the Incoterms 2020.
They define responsibilities related to the loading, the transport, the type of transport, the insurances, the delivery and payment of taxes.
They are named by three-letters abbreviations that determine the place and the moment of the risk transfer between the buyer and the seller.
In the international business system, 11 different incoterms exist, beginning with the letters E, F, C, D; classified here in ascending order of liability for the exporter:
E of ExWork being the minimum possible liability for the exporter and DDP being his maximum liability.
A very important point when exporting to Brazil is that you should not consider the incoterms of the category D.
Why?
Because in Brazil, customs clearance is only possible by a Brazilian importer with an import permit called RADAR (Registro e Rastreamento da Atuação dos Intervenientes Aduaneiros) giving access to the customs system called Siscomex.
A foreign exporter is unable to access Siscomex and make the necessary tax payments for the release of the goods.
Thus, the incoterm DDP – Delivery Duty Paid is totally ruled out if you are thinking of exporting to Brazil, since it makes the exporter responsible for the payment of import taxes – something of which he will be totally incapable.
On the other hand DAT (Delivery at Terminal) and DAP (Delivery at Place) are in theory possible for the exporter sending his products to Brazil.
However, this option is strongly discouraged. Customs clearance in Brazil can be complex and will be under the control of the importer, while logistics costs at the port or airport will be borne by the exporter.
If customs clearance takes time, and it is not uncommon in Brazil to see goods held up for several weeks, the exporter will be totally helpless and will have to pay for the storage costs incurred.
It is therefore preferable not to go beyond category C (CFR, CIF, CPT, CIP) where the responsibility will be transferred to the Brazilian importer upon arrival in the territory.
Now let’s see the possible Incoterms for exporting to Brazil:
EXW Incoterm (EX Works)
The buyer is in charge of exportation modalities. The risk and costs transfer occurs when the seller makes the goods available to the buyer in the seller’s factory at the place and deadlines agreed.
FCA Incoterm (Free Carrier)
The seller is in charge of export customs clearance modalities and costs. He can organize himself the pre-carriage until the port agreed, according to the agreements defined with the buyer, but he is not forced to do it. The risk and costs transfer occurs at the delivery in the port agreed.
FAS Incoterm (Free Alongside Ship)
The seller is in charge of export customs clearance modalities and costs. He also has to organize himself the pre-carriage until the port agreed and the handling such as the goods should be ready to be loaded. The risk and costs transfer occurs at this time.
FOB Incoterm (Free On Board)
The seller is in charge of export customs clearance modalities and costs. He also has to organize himself the pre-carriage until the port agreed and the handling such as the goods should be loaded “on board”. The risk and costs transfer occurs at this time.
CFR Incoterm (Cost and Freight)
Cost and Freight is an Incoterm which means that the seller pays for the pre-carriage to the port of shipment, as well as the loading and the main sea transport. The buyer pays for the insurance and the transport of the goods from the port of arrival to his factory.
CIF Incoterm (Cost Insurance and Freight)
The seller is in charge of the customs clearance modalities at origin, and has to organize and pay the transport and insurance until the port agreed. The risk and costs transfer occurs when the seller makes available the goods to the buyer, loaded “on board”, at the port of destination. The seller is in charge of unloading the goods at destination, the customs clearance modalities and the delivery at his place.
CPT Incoterm (Carriage Paid To)
The seller is in charge of the customs clearance modalities, and has to organize and pay the shipping transport until the port agreed. The risk and costs transfer occurs when the seller delivers the goods to the first carrier in the deadlines agreed. The buyer has to contract insurance for the international transport.
CIP Incoterm (Carriage and Insurance Paid To)
The seller is in charge of the customs clearance modalities, and has to organize and pay the shipping transport until the port agreed. The risk and costs transfer occurs when the seller delivers the goods to the first carrier in the deadlines agreed. The seller has to contract insurance for the international transport.
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