What are incoterms? The incoterm definition is a set of national and international commercial terms that are globally recognised. They clarify the obligations of both buyers and sellers and they’re used to help understand the exact terms of any business arrangements.
What are incoterms for?
International trade incoterms were developed by the International Chamber of Commerce in 1936. They’re constantly updated to conform to changing trade practices promoting open markets, and ensuring global economic prosperity through trade.
They provide a universal set of guidelines and rules with a common language that traders understand and can use to set the terms of their trades. Both the importer and exporter of goods are able to distribute the responsibilities of costs, risks, logistics, and transportation management from start to finish.
What are the obligations of incoterms?
The main responsibilities of incoterms are:
- Point of delivery: the incoterms define the change of hands from seller to buyer.
- Transportation costs: the incoterms define who pays for the required transportation of goods.
- Export and import formalities: the incoterms define who arranges export and import protocol.
- Insurance costs: the incoterms define who takes charge of specific insurance costs.
What are the tyes of incoterms?
There are currently 11 different incoterms with each type divided into four groups: E, F, C, and D. These categories are determined by the delivery location and whether the buyer or seller is responsible for covering the cost part of each journey. These groups are then put into sub-categories referring to different scenarios. Look at a sample of incoterms here…
Intercom Group C is where the seller bears responsibility for all costs to the destination port until the goods are loaded onto the transport when the risks are transferred to the buyer. Group C incoterms include:
Cost, insurance and Freight incoterm
The CIF incoterm defines that the seller will arrange insurance cover against the buyer’s risk of loss or damage, with terms relating to waterway shipments. The seller must deliver the goods to a designated port and load them onto a specified vessel assuming responsibility for all transportation and loading costs as well. The buyer will assume the cost and risk associated with transporting the goods from the designated port to the warehouse or business premises.
Intercom Group D terms relate to the destination of the goods and include:
Delivery Duty Paid incoterm
The DDP incoterm refers to the seller being responsible for all costs and risks relating to the delivery of goods up until the buyers named place of destination. This includes clearing goods for export and import, paying any necessary duties, and carrying out customs formalities. The risk transfers from the buyer the moment the goods are available at the destination.
Intercom Group F defines that the seller is responsible for delivering the goods to the buyer’s pre-agreed method of transportation. Then the buyer will take responsibility for the costs and risks. Sub-groups in the F category include:
Free on Board incoterm
The FOB incoterm is when the seller delivers goods on board a vessel nominated by the buyer. The seller must clear the goods for export. The responsibility is then transferred to the buyer once the goods are on board. FOB incoterms are used for waterway shipments.
Free Alongside Ship incoterm
The FAS incoterm is where the seller delivers the goods alongside the ship or to a place that is accessible for handling at the port of shipment that’s designated by the buyer. The risk of loss or damage to the goods passes when the goods are alongside the ship and the buyer will then be responsible for any costs.
What are the advantages of incoterms?
- Main and secondary terms help buyers and sellers to communicate contract provisions in a clear way which reduces any potential risk of misinterpretation.
- Standardised terminology is used by all companies conducting international business.
- There are 11 individual scenarios that clearly define the respective tasks, costs, and risks to be assumed.
- Incoterms can be chosen and reviewed to decide which set of terms are best suited to shipments.
- Incoterms are designed to make international trade easier.
Which incoterm should you choose?
You can implement a cost/benefit analysis to help you decide which may enable you to identify any tax or other financial benefits available for your transaction. You should also check for any country-specific restrictions or legal issues that could affect your shipment reaching its destination. Without the correct incoterm, your shipment could face problems with logistics costs increasing and issues within the supply chain.
Make your transport and logistics easy
DRG Solutions can help with any international courier services from Barcelona. This includes helping you with the regulatory incoterm choices. If the terminology all seems overwhelming you’ll get all the support you need from a comprehensive consultation with the experts. Knowing that cost and control is vital in choosing the most suitable incoterms for your shipment, you’ll be in safe hands.
