What are Incoterms?
As mysterious as the label itself might sound, it’s just a short way of saying international commercial terms.
What exactly are Incoterms?
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.
This educational article is shared by courtesy of Agility – a leader and investor in technology to enhance supply chain efficiency, a pioneer in emerging markets logistics, and the leading provider of digital tools that empower small businesses and individuals to manage their logistics online.
Learn more about Incoterms at agility.com/insights/smart-shipping/