The term of delivery is a part of the contract of trade between the seller and the buyer. In the end the correct term of delivery is the responsibility of the person who is in charge of the profitability of the business, e.g. sales director/purchasing directors. Logistics may consult the sales or the purchasing, but the decision is made by the seller and the buyer.
External or internal logistics may not amend or change the term of delivery without the order or permission of the principal.
The term of delivery is also an order to the internal and/or external logistics organization of the company. It tells what obligations the logistics organization should fulfil on behalf of the seller or the buyer.
The term of delivery should be in accordance with the agreed custom of delivery and comply with the practice. Incoterms terms of delivery define ten obligations for the seller and for the buyer. Most important of them are the definitions of delivery and taking delivery, division of costs and transfer of risk. If parties have agreed about these three items, usually there is no problem. On the other side, if some of them is not defined, the term of delivery does not solve the problem.
- Delivery = until which point the seller can give instructions about and bear the delivery risk concerning the goods and from which point the buyer gives instructions ad bears the risk.
- Costs = which costs of delivery are to be paid by the seller and which costs are to be paid by the buyer
- Risk = possibility of damage to or loss of goods or general average during transit, or of delay of delivery
When the seller and the buyer choose the term of delivery, they can concentrate on the delivery, division of costs and transfer of risk. Bids, offers or orders can be easily converted into order, if the term of delivery is correct right in the beginning.
Seller and buyer can ease the choice of the correct term of delivery by deciding in advance, which terms of delivery fit into the sales and purchasing strategy of the company.
Enclosed flow chart guides to choose the correct term. It is plain and does not include all decisive factors.