Incoterms® 2020 Explained for Import Export Global Trade

(upbeat music) - Understanding Incoterms® is a vital part of international

trade

. When

export

ing products internationally, you must agree to sell your products according to 11 Incoterms®. Incoterms® is the abbreviation for International Commercial Terms, which are published by the International Chamber of Commerce and relate to International Trade Law. They are accepted by governments and legal authorities around the world. The International Chamber of Commerce has published the latest version of Incoterms®, Incoterms®

2020

, which came into effect on January 1,

2020

. Simply put, Incoterms® are the terms of sale that both the buyer and seller of goods accepted for the international sale and supply of goods.

Incoterms® clearly establishes which tasks, costs and risks are associated with the buyer and which with the seller. The Incoterm® establishes when the seller's costs and risks are transferred to the buyer. This chart shows Incoterms® 2020 in an easy-to-understand format. Please note that this chart should be used as a guide only; For a complete description, you should consult the full version of Incoterms® published by the ICC. The blue section shows the different types of Incoterms® starting from left to right. The green section shows the groups, Any Mode or modes of transport and Maritime and Inland Waterway Transport. The yellow section shows the Collect Freight Terms and the Prepaid Freight Terms.

Starting from the left side is the

export

er or seller of the merchandise, starting at the seller's location or warehouse. As you move clockwise, products leave the warehouse, are loaded aboard a ship or plane at the loading port, shipped to the destination port, clear customs in the country of arrival, and then delivered. to the buyer's location. Along the way Incoterms® are established to establish which risks and costs the seller is agreed to pay and which will be transferred to the buyer. The left side of the chart shows the different obligations and charges, and shows which ones are covered by the seller and which ones are covered by the buyer.

So starting from the left is the first Incoterm® EXW, which stands for Ex-Works or Ex-Warehouse. If the buyer and seller agree to sell goods on Ex-Works terms, the seller's obligations are simple. The seller will only cover the cost of the merchandise and export packaging Ex warehouse. The seller will then manufacture the products, package them, and prepare them for pickup at his warehouse. From that moment on, all additional costs and risks related to transportation outside the warehouse are borne by the buyer. Moving up the supply chain, there are Incoterms® FCA, FAS and FOB. According to FCA, Free-To-Carrier, the seller will cover export duties, taxes and customs clearance to prepare the products for export.

According to FAS, Free-Alongside-Ship, the seller will cover the port handling charges of the origin terminal. Then it goes to FOB, Free-On-Board. FOB is generally the most popular Incoterm® used for containerized

trade

. When FOB terms are agreed, the seller's obligation is to supply the goods and also pay all additional charges involved in loading the goods on board the ship for export. That means the seller will cover all the charges mentioned above and pay the loading charges to load the goods on board the ship for export. As soon as the goods are loaded on board, all other associated costs and risks are transferred to the buyer.

Buyer will pay international freight and all subsequent charges. If the seller agrees to pay the cost of freight and transportation, he can choose to sell the products in CFR, CIF, CPT or CIP Incoterms®. Please note that CFR and CIF are similar Incoterms® that cover maritime and inland waterway transportation. If the seller agrees to cover the cost of insurance during international maritime transport, he or she may sell with Incoterm® CIF. CPT and CIP are similar Incoterms® that relate to any mode or modes of transportation, where the seller will agree to pay the destination terminal/port handling charges.

If the seller agrees to cover the cost of insurance during transportation, he can sell products under the CIP Incoterm®. Further on, DAP, DPU and DDP are Incoterms® related to the delivery, unloading and customs clearance of goods in the destination country. Under DAP, Delivered-At-Place, the seller will cover the delivery costs to the destination. If DPU, Delivered-at-Place-Unloaded, is agreed, the seller will also bear the costs of unloading at destination. Finally, if DDP, Delivered Duty Paid is agreed, the seller will also pay the

import

duties, taxes and customs clearance in the destination country. If you have any detailed questions related to Incoterms®, you should consult your carrier, the International Chamber of Commerce or other professional advice.

Before products can be shipped internationally, the buyer and seller must agree on the Incoterm® under which the products are sold. The Incoterm® must be approved in the sales contracts and endorsed by both parties to avoid misunderstandings. In the event of any dispute, reference will be made to the details included in the documentation. IncoDocs is a documentation software used by

import

ers and exporters around the world. It allows importers and exporters to connect to easily create all the sales and shipping documentation needed for

global

trade. Join the future of

global

commerce. Try it yourself at incodocs.com