The most common response I get – “what’s that”?
Perhaps you’re reading this and thinking yes, that’s me or yes, I’ve heard the word before but I don’t know what it means.
If you’re buying or selling overseas, I would suggest a working knowledge of incoterms would be of benefit. They are the “bible” that underpins the services that we provide and how we approach each shipment.
Incoterms is an abbreviation for “International Commercial Terms” as published by the International Chamber of Commerce (ICC). The latest version, Incoterms 2010, details 11 rules that define the tasks, costs and risks involved in the delivery of goods from the seller to the buyer.
The Incoterms serve as a universal language that when clearly identified in the sales contract and subsequent communication, allow any party doing business around the world to simply and clearly understand who is responsible for each stage of the transport process.
As an example, a first time importer who may be unfamiliar with international shipping when presented with the option of the overseas supplier paying for the transport to them would be forgiven for thinking that everything would be taken care of. However, if the supplier had paid for transport to the destination port only, the importer would be responsible for the arrival terminal fees, customs clearance and moving the cargo from the port to their premises. A surprise in terms of cost and tasks to be performed by the importer however an introduction to the CPT, CIP, CFR or CIF Incoterms.
Conversely, if the supplier is happy to make the goods available at their factory or at a port in their country, it’s likely that the EXW, FCA or FOB Incoterm will apply.
The above example primarily addresses the costs involved however it is prudent to also acknowledge that Incoterms address the transfer of risk between the two parties. Risk can be mitigated by decisions around the routing of cargo, arranging insurance and how the goods are packed.
Want to know more or are uncertain how to apply the above information? An internet search will provide plenty of information however a good starting point is one of the ICC publications – specifically Incoterms 2010. Alternatively, feel free to give us a call to discuss which Incoterm best applies to your upcoming shipment.