Can Incoterms be used for domestic shipments?

Since most businesses already refer to Incoterms when they do cross border trade, they also include them by default when doing domestic shipments. This is perfectly fine in most cases, however, both buyer and seller must be clear of their costs and obligations. To avoid misunderstandings, we always feel it is necessary to define even the most basic of terms in a sales contract. After all, the Incoterms were created to increase the efficiency of doing trade.

How to use Incoterms for domestics shipments?

When using Incoterms for domestic shipments, any aspects of the Incoterms that no longer apply can be ignored. For example, all obligations and costs related to import and export clearance activities will no longer be relevant and can hence be ignored. However, they cannot be “projected”. For example, the buyer must have a clear understanding that when he/she subsequently intends to export the shipment, the original seller will NOT be assisting with export clearance documentation and packaging. This can be a challenge for the original buyer because some documents can only be created by the original manufacturer such as Quality certifications and Free Sales Certifications.

Alternatives to Incoterms?

An important point to note is that other trade term frameworks may exist that use terminology similar to the Incoterms. One such example is the Uniform Commercial Code in the United States of America. In the UCC, it is possible to have similar terms with slightly different definitions and applicable meanings. To avoid any confusion, it is best to state the Incoterm being used in the full format. By following the full standard format it leaves neither party little room to guess which framework is being used as the point of reference.

Conclusion

Incoterms can be used for domestic trade, but the sales contract should include definitions of the costs allocations and obligations that do not apply to the transaction.