What factors should you consider when choosing an incoterm for international sales? (2024)

The first factor to consider is the nature of the goods that you are selling. Different types of goods may require different modes of transportation, packaging, handling, and storage. For example, if you are selling perishable goods, you may want to choose an incoterm that minimizes the time and distance that the goods are under your control and risk, such as EXW (Ex Works) or FCA (Free Carrier). On the other hand, if you are selling valuable or fragile goods, you may want to choose an incoterm that gives you more control and protection over the goods, such as CPT (Carriage Paid To) or CIP (Carriage and Insurance Paid To).

The second factor to consider is the destination of the goods that you are selling. Different countries may have different laws, regulations, tariffs, duties, taxes, and customs procedures that affect the import and export of goods. You need to be aware of these factors and how they may affect your costs, risks, and obligations as a seller or a buyer. For example, if you are selling to a country that has high import barriers or complex customs clearance, you may want to choose an incoterm that transfers the responsibility and risk of the goods to the buyer as soon as possible, such as FOB (Free On Board) or FAS (Free Alongside Ship). On the other hand, if you are selling to a country that has low import barriers or simple customs clearance, you may want to choose an incoterm that allows you to retain the responsibility and risk of the goods until they reach the final destination, such as DAP (Delivered At Place) or DDP (Delivered Duty Paid).

The third factor to consider is the relationship with the buyer that you are selling to. The level of trust, communication, and cooperation between you and the buyer can influence your choice of incoterm. For example, if you are selling to a new or unfamiliar buyer, you may want to choose an incoterm that reduces your exposure to payment risk or non-performance risk, such as CFR (Cost and Freight) or CIF (Cost, Insurance, and Freight). On the other hand, if you are selling to a long-term or loyal buyer, you may want to choose an incoterm that enhances your service quality or customer satisfaction, such as DAT (Delivered At Terminal) or DPU (Delivered at Place Unloaded).

The fourth factor to consider is the market conditions that you are selling in. The supply and demand, competition, pricing, and customer preferences of the market can affect your choice of incoterm. For example, if you are selling in a buyer's market, where the buyers have more bargaining power and options, you may want to choose an incoterm that gives you a competitive edge or a value proposition, such as CPT (Carriage Paid To) or CIP (Carriage and Insurance Paid To). On the other hand, if you are selling in a seller's market, where the sellers have more leverage and opportunities, you may want to choose an incoterm that maximizes your profit margin or cash flow, such as EXW (Ex Works) or FCA (Free Carrier).

The fifth factor to consider is the business strategy that you are following. Your choice of incoterm can reflect your strategic goals, objectives, and priorities as a seller. For example, if you are pursuing a market penetration strategy, where you aim to increase your market share and customer base, you may want to choose an incoterm that lowers your prices or increases your convenience, such as DAP (Delivered At Place) or DDP (Delivered Duty Paid). On the other hand, if you are pursuing a market differentiation strategy, where you aim to create a unique or superior value proposition, you may want to choose an incoterm that enhances your quality or reliability, such as DAT (Delivered At Terminal) or DPU (Delivered at Place Unloaded).

The sixth factor to consider is the legal implications that your choice of incoterm may have. Your incoterm can affect your rights and obligations, as well as your liability and remedies, in case of disputes, damages, or losses. You need to ensure that your incoterm is consistent with your sales contract, your insurance policy, and the applicable laws and regulations of the countries involved. You also need to ensure that your incoterm is clearly and accurately specified in your commercial invoice, bill of lading, and other relevant documents. You may want to consult a legal expert or a trade specialist before choosing an incoterm for international sales.

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