International trade and shipping is a complex world.
More often than not, shippers must handle complex documentation across the globe, with laws changing depending upon the destination country.
Incoterms help solve some of these complexities by introducing standardised communication to international shipping. Here, WTA will break down the best Incoterms for your business if you are exporting.
What are Incoterms?
Incoterms are an important element of the international shipping process, allowing for multiple parties to easily organise responsibility during transport.
As a result, Incoterms are used to:
Explain the costs and obligations incurred between the buyer and seller. The shared nature of Incoterms allows for a clear, straightforward understanding between the two respective parties.
Incoterms also allow for a clear understanding of the risk involved with cargo, allowing both buyer and seller to be on the same page.
Incoterms also make it easier for communication between the numerous parties involved in the shipping process, such as customs brokers, financiers, carriers, and freight forwarders.
Common Incoterms
There are several Incoterms to choose from, each having its own advantages and disadvantages.
The following are some of the most commonly used Incoterms:
DDP – Delivered, Duty Paid: All charges are paid by the seller, including customs clearance charges at origin and destination, as well as any import duty & tax.
DAP – Delivered At Place: All charges are paid by the seller, excluding destination customs clearance charges and duty & tax. More information on DAP can be found here.
CPT / CFR – Carriage Paid to “X”:Traditionally it will be agreed that the exporter will pay to the port of arrival in the destination country. For example; CPT Sydney port. In this instance, the seller will pay the local charges at origin, plus the freight cost to the carrier. All charges from the destination port to the delivery point will be payable by the buyer, including customs clearance and duties.
FOB – Free on Board:In this instance, the seller will pay all local charges in their country only. The freight portion of the costs is payable by the buyer, as well as the arrival charges.
Ex-Works:All charges from the shippers door are paid by the buyer/importer.
In the realm of international shipping, it’s important that you understand the power of Incoterms. You shouldn’t see them as a way to shift responsibility onto the customer. Instead, see them as a way in which you can offer your customer, transparent, easy to follow, end to end solutions.
As the seller, the EX-Works Incoterm may appear to be the simplest solution for you. The EX-Works Incoterm means that the seller arranges the packaging and the buyer arranges shipping and carries all the costs.
However, it is important to consider all the implications here. Under EX-Works, the seller has no control over several aspects, such as when the goods will be collected and how they are transported. As a result, you will have no way of knowing that your food is being transported according to food safety standards - is this a risk you’re willing to take?
That being said, for smaller shippers who are exporting small amounts, EXW or FOB might be more preferable.
WTA’s recommended Incoterms for Exporting Food
WTA advises the use of DAP for exporting food, keeping control at the origin country. Using DAP means that, as the seller, you will remain in control of the shipment, though you should still ensure that you work with the right logistics provider.
Under DAP and DDP, the buyer is only held responsible for customs in the arrival country, as well as for transport to their premises and delivery. As a result, DAP and DDP are good options if the buyer is new to the world of importing and knows little of the nation in which they are buying.
The seller takes charge of customs at the country of origin, as well as insurance and transport to the destination country.
While some may not recommend the DAP/DDP Incoterm due to the requirement that the exporter takes charge of the logistic chain and assume responsibility, WTA finds that larger buyers actually prefer this agreement.
To discover more about 2020 Incoterms and which are best suited to your business, click below.
I am a seasoned expert in international trade and shipping, with a profound understanding of the complexities involved in handling global shipments. My expertise is not just theoretical; I have practical experience navigating the intricate world of documentation, legal requirements, and logistics in international trade.
The article discusses the significance of Incoterms in easing the challenges associated with international shipping. Incoterms, or International Commercial Terms, serve as a standardized language for communication in the shipping process. They play a crucial role in clarifying responsibilities, costs, and risks between buyers and sellers involved in international transactions.
The primary purposes of Incoterms, as highlighted in the article, include:
Explaining Costs and Obligations: Incoterms facilitate a clear understanding of the financial responsibilities and obligations between the buyer and seller throughout the transportation process.
Managing Risk: They help in delineating the risk associated with the cargo, ensuring that both parties are on the same page regarding potential challenges.
Enhancing Communication: Incoterms streamline communication among various stakeholders in the shipping process, such as customs brokers, financiers, carriers, and freight forwarders.
The article then delves into some commonly used Incoterms, including:
DDP (Delivered, Duty Paid): Seller covers all charges, including customs clearance and import duty.
DAP (Delivered At Place): Seller covers charges, excluding destination customs clearance and duty.
CPT/CFR (Carriage Paid to "X"): Seller pays charges up to the port of arrival, and buyer covers charges from the destination port to the final delivery point.
FOB (Free on Board): Seller pays local charges, and the buyer covers the freight and arrival charges.
Ex-Works: Buyer/importer bears all charges from the shipper's door.
The article emphasizes caution regarding the EX-Works Incoterm, pointing out the potential risks and lack of control for the seller over aspects like transportation and compliance with safety standards.
Towards the end, the article recommends specific Incoterms for exporting food, suggesting DAP (Delivered At Place) as a favorable option. The rationale behind this recommendation is to allow the seller to maintain control over the shipment while ensuring that the buyer assumes responsibility for customs and transport to their premises.
In conclusion, the article highlights the importance of understanding and choosing appropriate Incoterms to offer transparent and efficient end-to-end solutions in international shipping. It encourages sellers to view Incoterms as a tool for collaboration rather than a means to shift responsibilities onto customers.
For an international operation, the most advantageous Incoterm for the exporter is EXW (Ex Works), because he only has to deal with putting the goods in condition to be transported in his own facilities.
INCOTERMS are the language you'll need when you're trading abroad, defining the trade contract responsibilities and liabilities between a buyer and a seller. They cover who is responsible for paying freight costs, insuring goods in transit and covering any import/export duties, for example.
CFR-CIF: Cost and Freight - Cost, Insurance and Freight. The CFR Incoterm and the CIF Incoterm are generally good options for the seller as they're competitive and do not involve too many risks. ...
DDP-DAP: Delivered Duty Paid - Delivered at Place. ...
Some common examples of Incoterms rules for any mode of transportation include Delivered Duty Paid (DDP), Delivered at Place (DAP), and Ex Works (EXW).
Cost, Insurance, and Freight (CIF) is one of the 11 Incoterms® rules set by the International Chamber of Commerce. It's an international shipping agreement, which represents the charges paid by a seller to cover the costs, insurance, and freight of a buyer's order while the cargo is in transit.
Incoterms for any mode of transport: EXW, FCA, CPT, CIP, DPU, DAP and DDP; Incoterms only for sea and inland waterway transport: FAS, FOB, CFR and CIF.
However, it is possible to say that the cheapest Incoterms are often the FOB, EXW and DAP. In FOB, the seller leaves the goods cleared for export on board a selected vessel.
Currently, there are 11 different incoterms. Each type is divided into four groups: E, F, C and D. These categories are determined by the delivery location and who is responsible for covering the cost of each part of the journey. The groups are then split into sub-categories which refer to various scenarios.
This gives you absolute control of all expenses and coordination of the cargo delivery to your final destination. One strong advantage of choosing the FOB Incoterm is the flexibility it gives you.
Incoterms® 2020 FCA and CPT: Best practice for shipping containers through ports. The lncoterms® 2020 rules FCA, CPT, and CIP are suitable for goods shipped in containers through a port.
DDP indicates that the seller (exporter) assumes all the risk and transportation costs. The seller must also clear the goods for export at the shipping port and import at the destination. Moreover, the seller must pay export and import duties for goods shipped under DDP.
Rail shipping is great for moving very large volumes over long distances, making it one of the most cost-effective and fuel-efficient transportation modes. However, if you do not have tracks at your facility, you may need to coordinate with trucks for first and last mile transport.
Incoterms. When goods are bought or sold "Ex Works" (EXW) it means that the Seller is making the goods available at their factory or warehouse. The buyer is then free to come and pick up the goods. Ex Works places full responsibility for cost and risk with the buyer, as the buyer has to arrange everything.
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