🎓 Business Basics - Incoterms, An Important Factor In International Trade

What are Incoterms?

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International Commercial Terms are defined by the International Chamber of Commerce (ICC) for the use on International commercial Transactions. They clearly outline the different responsibilities and costs that either the buyer or seller has to bear in order to clarify the details on the trade from the very beginning.

By mentioning an Incoterm within a contract of an international trade you may be assured that there won´t be any further major discussions about some costs or shifts in responsibilities. So it´s definitely recommended to get yourself familiar with those Terms in case you plan to buy or sell goods from/to some company abroad.

What gets defined by Incoterms?

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Basically Incoterms define who´s paying and organizing different parts of the international transport of the goods. Mostly it´s about who is responsible to pay and organize the transport but here you find a list with all the most important criteria:

• The Point from where the risk of loss or damage is transferred from seller to buyer
• The Point to which the freight costs are paid for by the seller
• The Way of Transport (Road, Air, Sea or a combination)
• Export Clearance (Filing Export Declaration, etc.)
• Eventual Insurance for the Shipment

Some Incoterms in Detail

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There are various Incoterms out there, which are being used by several businesses on a daily basis and you may get a very nice overview on the most important ones out of the following illustration. It shows in a nice way, how far the responsibilities and costs are taken over by the seller.

But of course here are some short descriptions on some of them to give you a little better understanding and which one might be the most suitable for your potential international trades ;)

• EXW (Ex-Works)
  The goods will be prepared for a Pick-up by the Seller, but all costs, risks and responsibilities are to be taken over by the buyer from that very moment. That´s definitely the most convenient option for the Seller.

• FCA (Free Carrier)
  The goods get delivered / handed over to a carrier through the seller, which as well defines the moment all risks and costs are transferred to the buyer.

• FAS (Free alongside ship)
  The Buyer arranges the transport of the goods alongside the ship but only takes over the responsibilities from the very moment on the goods arrive there.

• FOB (Free on Board)
  The Transport gets arranged by the Buyer but the risks and costs are only transferred whenever the goods are loaded on the boat.

• CFR (Cost and Freight)
  The Transport to the port of destination and the Insurance have to be arranged and paid by the seller. But the risks are taken over by the buyer from the very moment the goods are on board.

• DAP (Delivery at Place)
  The Seller takes over all costs and responsibilities until the goods are delivered to a specified place, which is normally defined as the buyers location. Only the Duties for the Import have to be taken over by the Buyer.

• DDP (Delivery Duty Paid)
  The Seller takes over the full responsibility of the transport and as well pays all Duties for the ex- and import of the goods. As a Buyer that´s the best Incoterm you can choose/get.

The Sources

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1 - Iaspaper.net
2 - Iccwbo.org (Int. Chamber of Commerce)
3 - Investopedia.com
4 - Wikipedia.org

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