Incoterms: Keys to Success in International Business

Incoterms or International Commercial Terms act as practical guidelines to facilitate global transactions and ensure clear and fair agreements between buyers and sellers.

If you are an entrepreneur who wants to venture into the world of international business, it is time to discover what Incoterms are and how they can help you achieve your goals.

What are Incoterms and how do they work?

Incoterms, also known as International Commercial Terms, are a set of updated rules published by the International Chamber of Commerce (ICC).

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These rules establish the rights and obligations of both the buyer and seller in an international commercial transaction. They are recognized and used throughout the world.

Incoterms define aspects such as the delivery of goods, the transfer of risks and responsibilities, as well as the distribution of costs between the parties involved.

By following these rules, traders can avoid misunderstandings and conflicts, as well as establish a clear framework for their transactions.

Incoterms 2020 are divided into two main groups, depending on the means of transport used for international trade. There are those that apply to any means of transport and others that are more specific to maritime transport.

For any means of transport

EXW (Ex Works or Ex Works)

The seller fulfills his obligation to deliver when he makes the goods available to the buyer at the named location, usually at his own factory.

The buyer is responsible for loading the goods onto the means of transport, for the customs export formalities and for all associated costs and risks thereafter.

FCA (Free Carrier)

The seller delivers the goods to the carrier designated by the buyer at an agreed place.

The seller is responsible for clearing the goods for export, but does not assume responsibility for loading the goods onto the means of transport.

The buyer bears the costs and risks from the agreed point of delivery.

CPT (Carriage Paid To)

The seller is responsible for delivering the goods to the carrier at an agreed location and is responsible for the primary transportation costs.

From that point, the buyer assumes the additional costs and risks, including import customs clearance.

DAP (Delivered At Place)

It states that the seller is responsible for delivering the goods to the buyer at an agreed place.

The seller is responsible for all costs and risks associated with the delivery of the goods, including transportation and export customs clearance.

The buyer assumes responsibility for import customs clearance and any additional costs once the goods have been delivered to the agreed place.

DPU (Delivered at Place Unloaded)

This term indicates that the seller is responsible for import customs clearance and associated costs, in addition to delivering the goods to the buyer at a place, meaning that the seller is responsible for unloading the goods unlike DAP.

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DDP (Delivered Duty Paid)

The seller is responsible for delivering the goods to the buyer at an agreed place, which must be ready to be unloaded and free of any export and import customs duties.

The buyer assumes no customs responsibility and is only responsible for receiving the goods at the agreed place.

Specific to maritime transport

FAS (Free Alongside Ship)

The seller delivers the goods by placing them alongside the ship at the named port of shipment. He is also responsible for clearing the goods for export, while the buyer assumes the costs and risks from the time the goods are placed alongside the ship.

FOB (Free On Board)

The seller is responsible for delivering the goods on board the vessel at the named port of shipment. The seller is also responsible for clearing the goods for export. Costs and risks are transferred to the buyer once the goods are on board the vessel.

CFR (Cost and Freight)

The seller delivers the goods on board the vessel at the named port of shipment. He is also responsible for the ocean freight costs to the agreed port of destination.

From that point, the buyer assumes the additional costs and risks, including import customs clearance.

CIF (Cost, Insurance and Freight)

The seller delivers the goods on board the vessel at the named port of shipment and bears the costs of ocean freight and insurance to the agreed port of destination.

From there, the buyer assumes the additional costs and risks, including import customs formalities.

What is the importance of Incoterms 2020?

Incoterms 2020 play a vital role in international business because they establish clear rules for the parties involved in an international trade transaction.

In addition, they allow the distribution of costs and risk by defining who bears each of these at a given stage of the transaction.

By correctly applying Incoterms, business owners can optimize their logistics operations, from transportation to warehousing and customs clearance. This leads to a more efficient supply chain and savings in time and costs.

They also give business owners a competitive advantage in the global marketplace.

By following these internationally recognized rules, traders can establish strong business relationships, build trust and make it easier to compare offers and prices between different suppliers.

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