What are Incoterms?

Have you ever heard of “Incoterms”? If not, then you are not alone. Incoterms, or International Commercial Terms, are a set of guidelines created by the International Chamber of Commerce (ICC) that outline the responsibilities and liabilities of each party involved in international trade transactions. In this blog post, we will discuss what Incoterms are and why they are important for businesses involved in international trade. We will also explain some of the most commonly used Incoterms and how to properly use them in your contracts. By understanding these terms, you will be able to ensure that both parties involved in an international trade transaction have a clear understanding of their rights and obligations.

What are Incoterms?

Incoterms are a set of international rules that define the responsibilities of buyers and sellers for the delivery of goods. They are used to determine which party is responsible for paying freight, insurance, and other costs associated with the transport of goods.

There are 11 Incoterms in total, divided into four categories:

E – EXW (Ex Works)
F – FCA (Free Carrier)
C – CPT (Carriage Paid To)
D – DAT (Delivered At Terminal)

The first category, E terms, are used when the seller makes the goods available to the buyer at the seller’s premises. The buyer is then responsible for arranging and paying for transportation.

The second category, F terms, are used when the seller delivers the goods to a carrier nominated by the buyer. The buyer is then responsible for paying freight and other costs associated with transportation.

The third category, C terms, are used when the seller delivers the goods to a carrier nominated by the buyer and pays for transportation. The buyer is then responsible for paying any remaining costs associated with transportation, including insurance.

The fourth category, D terms, are used when the seller delivers the goods to a terminal designated by the buyer. The buyer is then responsible for paying any remaining costs associated with transportation, including insurance.

What do Incoterms Mean?

Incoterms are a set of international commercial terms published by the International Chamber of Commerce (ICC) that establish which party is responsible for various aspects of the international carriage of goods. They are commonly used in contracts for the sale of goods worldwide and indicate which party is responsible for paying transport costs and assuming risks associated with the delivery of goods.

The ICC first published Incoterms in 1936, and they have been regularly updated to keep pace with changes in international trade. The most recent revision was published in 2010, and Incoterms 2020 will come into effect on January 1, 2021.

There are 11 Incoterms rules: EXW, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAT, DAP and DDP. Each one sets out the responsibilities of the buyer and seller for different stages of the transport process.

EXW (Ex Works): The seller makes the goods available at their premises. The buyer pays all costs and assumes all risks associated with collecting the goods and transporting them to their destination.

FCA (Free Carrier): The seller hands over the goods to a carrier nominated by the buyer at a specified location. The buyer pays all costs and assumes all risks associated with transporting the goods to their destination.

FAS (Free Alongside Ship): The seller delivers the goods alongside a vessel at a specified port. The buyer pays all costs and assumes all risks associated with loading

Types of Incoterms

Incoterms are a set of international commercial terms that define the responsibilities of buyers and sellers for the transport and delivery of goods. There are 11 Incoterms in total, divided into two categories:

E-terms: These Incoterms apply when goods are transported electronically, such as by email or download. The only E-term is EXW (Ex Works).

F-terms: These Incoterms apply when goods are transported by any means other than electronically, such as by sea, rail, or road. The 10 F-terms are FAS (Free Alongside Ship), FOB (Free On Board), CFR (Cost and Freight), CIF (Cost, Insurance and Freight), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), DAT (Delivered At Terminal), DAP (Delivered At Place), DDP (Delivered Duty Paid)

Each type of Incoterm has different implications for who is responsible for what costs relating to the transport and delivery of the goods, so it’s important to choose the right one depending on your needs.

When to Use Which Incoterm

There are many factors to consider when choosing which Incoterm to use for your international shipment. The type of goods being shipped, the mode of transportation, the distance the goods will be traveling, and whether or not you are shipping FOB (free on board) or CIF (cost, insurance, and freight) all play a role in determining which Incoterm is right for your shipment.

Here is a quick guide to help you choose the right Incoterm for your shipment:

-If you are shipping FOB, use FOB Destination if the buyer is taking responsibility for transportation costs and risks. Use FOB Origin if the seller is taking responsibility for transportation costs and risks.

-If you are shipping CIF, use CIF Destination if the buyer is taking responsibility for transportation costs and risks. Use CIF Origin if the seller is taking responsibility for transportation costs and risks.

-If you are shipping by sea, use FAS (Free Alongside Ship) if the goods are delivered to the port of departure and loaded onto the vessel by the seller. Use CFR (Cost and Freight) if the goods are delivered to the port of destination by the seller. Use CPT (Carriage Paid To) if the seller pays for carriage to the port of destination, but risk passes to buyer once goods are loaded onto vessel. Use DES (Delivered Ex Ship) or DEQ (Delivered Ex Quay) if goods are delivered

How Incoterms Work

When you are shipping goods internationally, Incoterms are used to determine who is responsible for what costs associated with the shipment. The Incoterm you choose will determine when the buyer or seller assumes responsibility for the goods being shipped. There are 11 different Incoterms, and each has its own set of rules.

Incoterms are divided into two categories:

E – for shipments where the buyer pays all costs associated with getting the goods to their door

F – for shipments where the seller pays all costs associated with getting the goods to the port of export

The most commonly used Incoterms are:

EXW (Ex Works) – This is the simplest Incoterm, and means that once the goods are ready, it is up to the buyer to arrange and pay for shipping. The seller is only responsible for making the goods available. This term is often used when the buyer has a good working relationship with a particular shipping company and can get a better rate than if the seller arranged shipping. FCA (Free Carrier) – The seller hands over responsibility for the goods to a carrier nominated by the buyer at an agreed upon location. The buyer then pays for shipping from that point on. This term can be used whether transport is by land, sea or air, and works well when both parties have their own transport arrangements in place. CPT (Carriage Paid To) – With this term, responsibility for shipping passes from seller to buyer at an

Conclusion

As you can see, Incoterms are an incredibly important part of international trade. With their use, businesses can be sure that they will be properly informed about the terms of delivery and payment for each transaction. This helps to ensure smooth operations between buyers and sellers from different countries who might have significantly different laws governing business activities. As such, any company engaging in or considering international trade should make sure that they are familiar with Incoterms before engaging in business transactions abroad.