Incoterms

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Incoterm

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International Commerce Term

Specifies the responsibilities of the exporter and the responsibilities of the importer in an international transaction

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Understanding Incoterms

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1. Denote which tasks will be performed by the importer/exporter.

2. Denotes which activities will be paid by the importer/exporter.

3. Defines when the transfer of responsibility will take place.

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Transfer of Title (Ownership)

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Usually done when the iporter has either paid the exporter (and obtained the original bill of lading), accepted to sign a draft, or performed some other event outlined in the contract of sale.

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Transfer of Responsibility

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Happens at the delivery of the goods, a point that is outlined in the Incoterms and, in most cases, a point that occurs chronologically much earlier than the transfer of title.

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Factors Affecting Incoterm Choice

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1. type of product sold
2. method of shipment
3. ability of either of the parties to perform the tasks involved in the shipment.
4. amount of trust between the two parties

***greatest criterion is willingness of both parties to perform and pay for some of the tasks involved in the shipment.

exporter may seek strategic advantage by assisting the importer in shipment in order to facilitate the sale of it products

importer - may seek a price advantage by performing some of the functions on its own

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Incoterm Choice

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is often the exporter's decision, as they tend to apply one term of sale to most of their transations and it may be hard to "adapt" to each importer

regardless of incoterm chosen, the importer is always paying fo the transportation and other costs of shipping internationally in the end. the exporter may mark up the price to include the costs they incurred to arrange certain aspects of the shipment, and they may include a premium for the time and effort they put into these arrangements.

Regardless, the choice of an incoterm is a critical decision as it is an integral part of the export strategy and linked to the level of customer service the exporter is aiming to provide.

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Ex-Works (EXW)

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The "easiest" of the incoterms for the exporter.

The exporter's only obligation is to place the goods at the disposal of the buyer and render eery assistance in obtaining an export license and/or other official authorization necessary for the export of the goods.

Exporter must package the goods for export, but is not responsible for loading.

VARIANT: EXW - loaded, means that the exporter and importer agreed that the expense and responsibility of loading the goods falls on the exporter.

Delivery: the exporter has to notify the importer that the goods are ready for pick up. The importer has to notify the exporter of the time at which the goods are to be picked up. No specific transportation document corresponds to the delivery of the goods under this incoterm, but the exporter will generally be given a bill of lading.

Exporter's Responsibilities: make the goods available to the buyer, package them for shipment, assist in export clearance, and provide documents so that the importer can clear cu

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Variants

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Used to further clarify the responsibilities of the exporter and of the importer in a given transaction.

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Free Carrier (FCA)

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Can be used for any goods and any means of transportation, but was specifically designed for goods shipped through multi-modal transportation (containers).

Can be used for FCL or LCL shipments.

Becoming one of the more popular incoterms.

Delivery: Takes place when either of two conditions are met:

1. if the named port in the incoterm refers to the exporter's plant, then delivery takes place when the goods are loaded by the exporter and at its expense onto the carrier's truck.

2. if the named point in the incoterm refers to the carrier's premises, then delivery takes place when the goods are made available to the carrier. The goods are unloaded from the exporter's truck by the carrier and at the carrier's expense.

The document that correspends to transfer of responsibility for an FCA shipment is the receipt given by the carrier to the exporter (bill of lading, sea waybill, air waybill, or a multi-modal bill of lading).