Traps in Incoterms – what you need to know to avoid mistakes in international trade

International trade is a complex process in which both sellers and buyers must be aware of the fundamental differences in responsibilities related to transport and customs clearance. One of the key elements in this area is Incoterms 2020, the international trade rules that define who is responsible for transport, insurance, customs clearance, and other transaction-related matters. Despite their widespread use, there are many pitfalls that can lead to misunderstandings and even financial losses. It is essential to fully understand how the various Incoterms rules work to avoid additional costs and legal risks.

1. DDP (Delivered Duty Paid) – seller’s responsibility

One of the most commonly used terms in international trade is DDP (Delivered Duty Paid), which means that the seller takes full responsibility for transporting the goods to the designated location in the buyer’s country, as well as handling customs clearance and paying all duties and VAT. Although these terms may seem beneficial for the buyer, in practice, sellers may not be fully prepared to handle customs clearance in the importer’s country. This can lead to delays, additional costs, and difficulties in obtaining the necessary customs documents.

Note: In the case of DDP, even though the seller is responsible for customs clearance, the buyer should verify the customs documents to ensure that the transaction complies with current regulations. It is also crucial to remember that the seller must have the ability to process customs clearance in the import country, as any documentation issues may result in extra fees.

2. DAP (Delivered at place) – buyer’s responsibility for customs clearance

Under DAP (Delivered at Place), the seller is responsible for transporting the goods to the designated place in the buyer’s country, but the buyer is responsible for customs clearance and all associated duties and taxes. While the buyer has greater control over the customs process, they must be aware that incorrect documentation, such as missing T1 or T2 declarations, can lead to customs authorities holding the goods and incurring additional costs, such as delivery delays, administrative penalties, or the need to pay customs duties again.

Note: When using DAP, the buyer should carefully check the documentation provided by the seller and be fully aware of the customs clearance procedures in the import country. It is also essential to ensure that all documents comply with customs regulations to avoid risks associated with customs clearance failures.

3. “Gray Customs” – The risk of missing proper customs documentation

A key issue to watch for is the practice known as „gray customs,” where goods are imported without proper customs clearance. Some sellers outside the EU, such as those from China, may not have the ability to complete customs clearance within the EU. In such cases, the buyer may be forced to cover additional costs such as customs duties and VAT, and there is a risk that the goods may be held by customs authorities until the issue is resolved.

Note: Buyers should verify whether the seller can process customs clearance and ensure that all customs documents are in order before completing the transaction. Additionally, consulting with customs experts is advisable to ensure compliance with regulations.

4. T1 and T2 – key documents for proper transport

For international transactions, particularly for goods in transit, it is crucial that the seller or buyer has the correct transit documentation, such as T1 or T2, depending on the nature of the goods. T1 applies to goods transiting through the European Union, while T2 covers goods in internal circulation within the EU. Missing the proper transit declarations can lead to delays, additional costs, and the goods being held by customs authorities.

Note: For transportation within the EU or from non-EU countries, it is essential to have the correct transit documents that comply with customs requirements. If there are any issues with customs documentation, the buyer may face additional costs and delays.

Conclusion: key rules to avoid incoterms pitfalls

Incoterms 2020 can simplify international trade, but they also come with certain risks, especially concerning customs clearance. Regardless of whether transport, insurance, and customs clearance responsibilities fall on the seller or the buyer, both parties must be aware of potential risks and ensure compliance with customs regulations.

To avoid Incoterms pitfalls, always:
Familiarize yourself with Incoterms rules to understand the responsibilities of each party.
Verify the customs documents provided by the seller and ensure they comply with current regulations.
Avoid „gray customs” risks by ensuring that the seller has the proper capacity for customs clearance in the import country.
Consult with a customs expert to ensure proper clearance and find the best solutions for documentation issues.

Accuracy and responsibility in international trade can protect you from unnecessary financial losses and customs clearance problems.