Logistics is a concept that entails translocation of products from the selling point to the designated destination. This includes movement of products across international borders and delivering them to designated locations. Such translocations have inherent risks and other associated costs that must be covered by different parties based on the agreements. Dynamics of operations in different countries has led to unification of various logistics standards and related issues. Some regions possess higher risks and overhead translocation costs due to restrictions and infrastructure condition in such regions. To harmonize logistics operations in global and international trade, HS ...view middle of the document...
Globalization makes it possible to conduct trade in any part of the world, which makes it easier to transport products from the manufacturers or sellers to buyers across borders with little restrictions (Kumar 52). However, due to the scope of products being moved, harmonization becomes a defining concept that enables similar products to be grouped under one code for ease of processing. This codification is done under the Harmonization System Code (HS Code).
By definition, INCOTERMS are a conventional three-letter standard trade term that have been devised to ease cross border transactions and are embedded in international contract when dealing to selling of goods (New INCOTERMS 1). These three letters are used to describe or inform the buyer and seller on issues dealing with cost coverage, obligations of each party and risks involved in movement of products from the seller to the buyer (New INCOTERMS 1). The contract offers details on who will cover associated costs like insurance cost and transportation costs. Some regions like India have inherently higher transportation cost that has been associated with over 40 % of the total cost of the product (Kilgore, Joseph, and Metersky 38; Lee, Rammohan, and Sept 54+). If the seller is the one covering transportation cost to a specific destination inside India, such associated costs must be included in product pricing for profitability to be achieved. Shipment of products may be marred with risks of loss or damage of products. Incoterms clarifies which party will have the obligation to cover for such risks and losses.
Incoterms are mainly used in logistical issues on sourcing. In some cases, the seller’s only obligation is to ensure that the products are available for the buyer at the seller’s location. This means that the buyer under the EXW term solely covers the logistical issues associated with the movement of the products (New INCOTERMS 1). The buyer sourcing for logistical solutions knows that all risks inherent to logistical translocation lies squarely on the buyer. This is an example of the buyer taking full responsibility for logistical challenges and risks under buyer’s full responsibility to cover the costs and risks associated with translocation.
Incoterms provides for the seller’s full responsibility for logistical issues including translocation from the seller’s location to the buyer’s location. Any risks of loss or damage of such cargo is the sole responsibility of the seller under the DAP and DAT terms (New INCOTERMS 2).
In some cases, the buyer and the seller bear partial responsibility for cost and risks associated with logistics. Under terms like FCA and CPT, the buyer and the seller bear partial obligation for the product (New INCOTERMS 2). For instance, products from Wal-Mart (seller) may be shopped to the coast of India where Bharti (Buyer) then takes full responsibility of logistical issues in movement of the product from the port to a designated destination (Kilgore,...