Incoterms Defined in Laymen’s Terms
What Are Incoterms?
Those in the world of shipping are familiar with Incoterms®. Defined in laymen’s terms, Incoterms are simply a way to clarify the roles and responsibilities of those involved in the shipping process.
To define Incoterms first involves outlining the many steps and factors in international shipping. These factors include costs, changes in ownership, and risks for both importers and exporters, for example. A successful supply chain navigates these steps and factors well.
Incoterms help define which party is contracting transportation or providing insurance, for example. If this isn’t made clear, a shipment could be delayed, damaged, or lost without knowing who is supposed to be responsible. As a result, Incoterms are the standard terms that clarify the roles and responsibilities.
They are maintained by the International Chamber of Commerce (ICC) and accepted across the globe. The buyer and the seller agree to the Incoterm of a shipment in advance, which helps determine objectives including carriage, cost, and risk.
Carriage involves determining how to get a shipment from one place to another. In international shipping, this can involve many different steps. Incoterms define exactly who is responsible for the shipment during each stage of transport (usually the seller or the buyer).
Lane and mode both influence international transportation costs. The Incoterm on a shipment determines who arranges the transportation, who is responsible for payment, and how it is reflected in the overall transaction. Transportation fees are included in the invoice value of the goods, and can often be deducted for duty and tax benefits.
There are many points of risk during the shipping process. It’s important to know who bears the risk at each point, in the event that a shipment is lost or damaged along the route. Incoterms define who bears this risk, which helps facilitate a resolution.
Incoterms in 2021 include:
- EXW (Ex Works)
- FCA (Free Carrier)
- FAS (Free Alongside Ship)
- FOB (Free On Board)
- CFR (Cost And Freight)
- CIF (Cost, Insurance, and Freight)
- CPT (Carriage Paid To)
- CIP (Carriage Insurance Paid To)
- DAT (Delivered At Terminal)
- DAP (Delivered At Place)
- DDP (Delivered Duty Paid)
Stay tuned to the Customodal blog page for more in-depth looks at each of these Incoterms defined.
Customodal can help you decide which are best for your shipments to cut costs. Contact us online or call us at 800-445-6577 to start working with a shipping partner who can expertly guide you and ensure you are making the best logistical decisions.