A Guide to Choosing Incoterms
The correct choice of Incoterms significantly influences the success of international trade transactions. This guide clearly explains Incoterms 2020 and provides effective selection methods.
Understanding Incoterms
What are Trade Terms?
Incoterms define the terms of delivery for goods in international trade and clarify the locations of cost and risk responsibilities in sales contracts. These standardized rules, set by the International Chamber of Commerce, prevent misunderstandings and enhance the transparency of transactions.
Commonly Used Incoterms
- EXW (Ex Works): The buyer bears the most responsibility. Delivery is made at the seller’s factory, and all risks and costs transfer to the buyer from that point.
- DDP (Delivered Duty Paid): The seller bears the most responsibility. The seller covers all risks and costs until the goods are delivered to the buyer in the destination country.
Conditions Specific to Maritime Transport
- FOB (Free On Board): Risks and costs transfer to the buyer when the goods are loaded onto the ship in the export country. This term is frequently used in maritime transport.
- CIF (Cost Insurance and Freight): Similar to FOB, but the seller also bears the cost of freight and insurance until the goods reach the importing country.
Recommended Selection Methods
Choices Based on Situation
- Parcel Shipments: For small shipments using couriers like FedEx, DHL, or UPS, terms like DAP or DDP are suitable. These terms often make the seller responsible for delivery troubles.
- Container Shipments: For regular trade using containers, CIF is recommended. This term is especially beneficial in terms of insurance for the importer, providing coverage for accidents in the exporting country.
Summary
Choosing the right Incoterms is essential for clarifying the distribution of risks and costs in international trade, thereby enhancing its efficiency. Selecting the optimal Incoterms based on each business situation minimizes the risk of transactional troubles.
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