What is incoterms? (Practical Guide to International Freight)
When we talk about the transportation of an export product, we have to consider numbers of issues. The most important of these are the following:
Place of delivery: Determine where the seller delivers the product to the buyer. This place can be in the seller’s country or buyer country. It is also discussed when you want to register your products on international B2B sites like Alibaba.
Paying shipping costs: Because shipping costs can be high, it’s better negotiate with your trading party before the deal is done and determine which parts of shipping costs will be paid by the seller and which parts will be paid by buyers.
Transfer point of risk and liability: the risk of damaging product in transit is always there. Therefore, the point where the risk of transportation of the product from the seller to the buyer is transferred is very important, and since then the seller will not be responsible for the risks of shipping the product.
Customs and administrative works: the administration of customs and clearance of goods requires a lot of time and money. For examples customs clearance in the country of origin, experiments, import clearance, and payment of customs duties in the destination country. It is necessary to determine which part of these matters will be carried out by the buyer and which part will be carried out by the seller.
What is incoterms?
In the international community, the standard term for the transport of products called Incoterms (International Commercial Terms) has been developed in order to create a common language between exporters and importers, and to determine precisely above conditions. The Incoterms terms specify the main shipping activities between the buyer and seller. These main activities include:
Customs clearance for export
Carriage to the origin country (port, airport, train station)
discharging at the terminal of origin country
Loading at the terminal of origin country
Carriage between the origin country and the terminal of the destination country
Insurance of shipping
discharging at the terminal of the destination country
Customs clearance in destination country and paying taxes and duties
Loading at terminal of the destination country
Carriage to the destination point in the destination country
This standard consists of 11 different modes, and in each of these modes, the various product transport activities are divided between the buyer and the seller, and indicates the point that specify the shipping risk. These 11 modes are:
EXW (Ex Works)
FCA (Free Carrier)
FAS (Free Alongside Ship)
FOB (Free on Board)
CPT (Carriage Paid to)
CIP (Carriage and Insurance Paid to)
CFR (Cost and Freight)
CIF (Cost, Insurance and Freight)
DAT (Delivery at Terminal)
DAP (Delivered at Place)
DDP (Delivered Duty Paid)
These 11 modes can be divided into two general categories. The first category includes modes that are applicable to all marine, land, air and railways (EXW, FCA, CPT, CIP, DAT, DAP, DDP) and the second group of modes used only in Sea and Inland Waterway. (FAS, FOB, CFR, CIF)
This infographic identifies each of the modes of this standard.