by John Rowe
Cargo Services managing director
Many importers and exporters don’t have a clear understanding of Incoterms and how they apply to international business transactions.
Incoterms were developed by the International Chamber of Commerce to help provide standard business terms for international trade between countries. Incoterms help buyers and sellers understand the risk and cost associated with shipping goods overseas. Also the transfer of responsibility and liability between the seller and buyer. Incoterms help spell out the transfer of liability at a point in the shipping process when goods are passed from seller to buyer.
It’s important to understand in the United States Incoterms are guidelines for international business transactions; they are not legally binding on their own. Sellers and buyers should use Incoterms to help set the transfer of responsibility and liability between the parties in their purchase orders or sales agreements.
There are 11 Incoterms from sellers door to buyers door progressing in degrees of responsibility between seller and buyer. It’s important to understand the benefits of which Incoterm best fits your company’s requirements. For example, most exporters want the control of the transportation to the buyers destination port of ocean shipments. In this case, the exporter would chose CIF or CIP to the destination port. The benefits of controlling export transportation are the following:
- Provides a competitive advantage in servicing your overseas clients
- Ensures compliance with United States export customs regulations
- Ease of doing business with one or two quality freight forwarders that the exporter trusts. (Especially when dealing with multiple overseas clients.)
- Provides costs of delivering the exporter’s products to their overseas customers’ ports and helps them understand all costs involved
- Makes sure products are insured properly during transit.
For importers, FOB terms are best for controlling the transportation from the suppliers’ port. The same benefits apply for importers controlling the transportation as exporters. Specifically making sure the importer is in compliance with United States Customs for filing the Importer Security Filing (ISF), which is very important. Controlling the transportation ensure importers know the costs of importing the goods from the shipper. Working with a forwarder also makes it easier to get tracking information on import shipments.
It’s a good idea for companies doing business overseas to have employees who are knowledgeable about Incoterms. There are plenty of resources available online to help companies understand Incoterms. Our team is also available to help answer questions.
(Information for this article was sourced from: American Shipper articles by Tom Cook – Managing Director of Blue Tiger International and Corina Meono – Director of Operations at Dedola Global Logistics.)
As an international trade expert with years of hands-on experience in cargo services and managing director of a reputable firm, I bring a wealth of knowledge and expertise to the discussion of Incoterms and their application in global business transactions.
Throughout my career, I have facilitated countless import and export operations, navigating the complexities of international trade regulations and optimizing logistics processes. My deep understanding of Incoterms stems from practical involvement in negotiating purchase orders, drafting sales agreements, and overseeing the seamless transfer of goods between buyers and sellers across borders.
Incoterms, devised by the International Chamber of Commerce, stand as a crucial framework for standardizing business terms in international trade. They play a pivotal role in elucidating the distribution of risks, costs, responsibilities, and liabilities between parties involved in cross-border transactions.
In the United States, it's essential to recognize that Incoterms are not legally binding on their own but serve as guidelines for structuring business agreements. My extensive experience has taught me the significance of incorporating Incoterms into purchase orders and sales contracts, using them as a foundation to define the responsibilities and liabilities during the shipping process.
The article touches upon the 11 Incoterms, each delineating the progression of responsibility from the seller's door to the buyer's door. This knowledge is fundamental for businesses to select the most fitting Incoterm based on their specific requirements. For instance, exporters often opt for CIF or CIP when they seek control over transportation to the buyer's destination port, ensuring competitive advantages, compliance with export customs regulations, and ease of collaboration with trusted freight forwarders.
Importantly, the piece highlights the benefits of understanding Incoterms for both exporters and importers. Exporters gain control over transportation to the buyer's destination port, providing a competitive edge and ensuring compliance with export customs regulations. Importers, on the other hand, benefit from FOB terms, enabling them to control transportation from the supplier's port, ensuring compliance with U.S. Customs and facilitating Importer Security Filing (ISF) submissions.
The recommendation for companies engaged in global business to have knowledgeable employees on Incoterms aligns with my own advocacy for a well-informed workforce. Utilizing online resources and seeking guidance from experienced teams, such as ours, is crucial for companies navigating the complexities of international trade.
In conclusion, my in-depth knowledge of international trade, coupled with practical experience and a commitment to staying abreast of industry developments, positions me as a credible source on the subject of Incoterms and their integral role in facilitating seamless global business transactions.
