What Are The Different Types Of Incoterms And What Do They Mean In Procurement?

Introduction

In today’s global marketplace, procurement professionals are constantly faced with the challenge of managing complex supply chains. One area that can be particularly confusing is understanding the various incoterms – which are shorthand for international commercial terms – used in contracts to define who bears responsibility for transportation and other costs. If you’re new to the world of procurement or just looking to brush up your knowledge, this post will help you navigate the different types of incoterms and what they mean in practical terms. So let’s dive into this essential topic and demystify it once and for all!

Types of Incoterms

There are eleven different types of Incoterms, which are internationally recognized trade terms that define the responsibilities of buyers and sellers in relation to the transport and delivery of goods. The most commonly used Incoterms are:

EXW (Ex Works): The seller provides the goods at their premises. The buyer is responsible for all other costs and risks associated with taking possession of the goods, including loading, transportation and insurance.

FOB (Free On Board): The seller delivers the goods to the port of shipment specified by the buyer. The buyer is responsible for paying for loading and transportation costs from that point onwards, as well as any applicable taxes and duties. FOB terms are often used when goods are being shipped by sea or air.

CFR (Cost and Freight): The seller delivers the goods to the port of shipment specified by the buyer and pays for loading and transportation costs up to that point. The buyer is then responsible for paying any applicable taxes and duties, as well as any further transport costs. CFR terms are also often used when shipping by sea or air.

CIF (Cost, Insurance and Freight): Similar to CFR, but with the addition that the seller also arranges and pays for insurance against loss or damage during transit up until delivery at the port of destination specified by the buyer. Again, responsibility for paying taxes and duties lies with the buyer beyond this point. CIF terms are also used when shipping by sea or air.

How Incoterms Affect Procurement

When it comes to Incoterms, there are a few key things that you need to know in order to make sure that your procurement process goes smoothly. Incoterms tell you who is responsible for what when it comes to the transport of goods, and they can have a big impact on your bottom line. Here’s a quick rundown of the different types of Incoterms and what they mean for your business:

– Ex Works (EXW): The seller is responsible for making the goods available at their premises. The buyer is responsible for all costs and risks associated with getting the goods from there to their final destination.

– Free Carrier (FCA): The seller is responsible for delivering the goods to the carrier nominated by the buyer. The buyer is then responsible for all costs and risks associated with getting the goods from there to their final destination.

– Free Alongside Ship (FAS): The seller is responsible for delivering the goods alongside the vessel nominated by the buyer at a port of loading. The buyer is then responsible for all costs and risks associated with getting the goods from there to their final destination.

– Cost and Freight (CFR): The seller is responsible for delivering the goods to the port of loading nominated by the buyer and paying for all costs up to that point. The buyer is then responsible for all costs and risks associated with getting the goods from there to their final destination.

– Cost, Insurance and Freight (CIF

Conclusion

In conclusion, incoterms are an important part of procurement because they help to define the responsibilities of buyers and sellers in international trade. It is essential that these terms are thoroughly understood and agreed upon by both parties before conducting any transaction. With a clear understanding of what each term means, buyers can ensure their rights and obligations as well as minimize risks when trading with suppliers from different parts of the world. Therefore, having knowledge about incoterms is key for successful global trade.