Shipping Terms (Incoterms) that You Need to Know When You Are Sourcing From Overseas

This article is originally posted in https://www.Income2Liberty.com/blog. (https://www.income2liberty.com/post/shipping-terms-that-you-need-to-know-when-you-are-sourcing-from-overseas)

If you are trying to source product from overseas, say, from the Far East or China, you must pay attention on the shipping terms that you will come across. Because different shipping terms offered by your suppliers in the deal will cost differently. Let’s discuss a little bit about the most commonly used shipping terms and Incoterms in this article.

The Incoterms

The Incoterms (the abbreviation of the International Commercial Terms) are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law. These terms, which at present are comprised of 11 internationally recognized rules, are widely used in international commercial transactions or procurement processes. They are made to let the worldwide trade councils, legal authorities, courts, international legal practitioners and governments for easy and unifying interpretation of most commonly used trading and shipping terms.

The first Incoterms was published by the ICC on international trade terms back in 1923, and they are amended times and again until present day version Incoterms 2020 which is released on 10 September 2019.

The 11 Rules of the Incoterms 2020

The Incoterms appears in a set of 11 rules which all of them are signified in an abbreviations of a three-letter system trade terms related to common contractual sales practices. The Incoterms are intended clearly define the responsibilities, tasks, costs, and risks associated with the international transportation and delivery of goods. The 11 rules provide respective obligations, costs, and risks involved in the delivery of goods from the manufacturer, seller to the buyer.

The 11 Incoterms rules do not themselves conclude a contract, determine the price payable, currency or credit terms, govern contract law or define where title to goods transfers. In everyday practice, one can see that the terms are explicitly specifying who (buyer or seller) is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.

The 11 Incoterms Rules Explained

7 Rules for any mode of transport
EXW — Ex Works (named place of delivery)
FCA — Free Carrier (named place of delivery)
CPT — Carriage Paid To (named place of destination)
CIP — Carriage and Insurance Paid to (named place of destination)
DPU — Delivered At Place Unloaded (named place of destination)
DAP — Delivered At Place (named place of destination)
DDP — Delivered Duty Paid (named place of destination)

4 Rules for sea and inland waterway transport
FAS — Free Alongside Ship (named port of shipment)
FOB — Free on Board (named port of shipment)
CFR — Cost and Freight (named port of destination)
CIF — Cost, Insurance & Freight (named port of destination)

The most important thing you need to know when you are dealing with your supplier is that the Incoterms rule defines the responsibilities of the goods during the whole transportation process since each term will specify whether the buyer or the seller will need to bear for the risk and cost of at each point of delivery.

INCOTERMS 2020 Diagram

Underneath is a diagram summarising the delivery point, risk and cost for the 11 Incoterms (source: https://www.income2liberty.com/post/shipping-terms-that-you-need-to-know-when-you-are-sourcing-from-overseas):

If you want to know more about shipping terms or the Incoterms, feel free to contact us for free advice and consultation by visiting https://www.Income2Liberty.com/contact.