What exactly are Incoterms?
As mysterious as the label itself might sound, it’s just a short way of saying international commercial terms.
Published by the International Chamber of Commerce (ICC) and revised on a ten-yearly basis, Incoterms define the transactional obligations and responsibilities of a buyer and seller.
These universally recognized rules exist to aid communication and reduce confusion for parties engaged in international commercial transactions.
Incoterms define the following responsibilities:
- The place of destination for the shipment
- Transportation costs
- Insurance costs
- The formalities of importation and exportation
How to choose the right Incoterm for your business
While freight forwarders can always advise you about which incoterm to use, the decision will ultimately be in the hands of your business.
It’s important to understand how each term affects an international sales agreement. Banks and financial institutions need assurances that all the parties involved in a contract are aware of their obligations and liabilities.
Things to consider
As an exporter, you should consider if your business has the capacity to pay the costs and bear the risks of transportation to the point of delivery, or if it would be better to limit those obligations within the borders of your country, where you have more control over logistics.
As an importer, if you have developed a strong logistics team and network with your freight forwarders, then you might wish to have control of insurance and transportation arrangements, because you can maintain transparency and perhaps benefit by consolidating shipments in the exporting countries.
Learn more about Incoterms at agility.com/insights/smart-shipping/
Incoterms® and the Incoterms® 2020 logo are trademarks of ICC. Use of these trademarks does not imply association with, approval of or sponsorship by ICC unless specifically stated above. The Incoterms® Rules are protected by copyright owned by ICC. Further information on the Incoterm® Rules may be obtained from the ICC website iccwbo.org.