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INCOTERMS IN LOGISTICS

Updated: Sep 5, 2023

The Incoterms (International Commercial Terms) are a set of standardized terms that are used in international trade to establish the responsibilities and costs between the buyer and the seller in a sale transaction.

Container lot
Cargo Containers Trailer Lot

How does it affect you as an importer and exporter? How does it impact logistics and customs companies?


Each Incoterm clearly defines who must assume the costs and responsibilities of transporting the merchandise, from the place of origin to its final destination. Obligations regarding cargo, insurance, customs and necessary documents are also established.


The ICC in 1933 publishes Incoterms, which is a short way of saying International Commercial Terms. As mentioned, it is a series of rules that will help you understand what you need to expand your business internationally if you are thinking of expanding your company.



NEW TYPES OF INCOTERMS

For any means of transport:

  • Ex-Works (EXW)

  • Free Carrier (FCA)

  • Carriage Paid To (CPT)

  • Carriage and Insurance Paid To (CIP)

  • Delivered At Place (DAP

  • Delivered at Place Unloaded (DPU)

  • Delivered Duty Paid (DDP)

For maritime transport:

  • Free Alongside Ship (FAS)

  • Free On Board (FOB)

  • Cost and Freight (CFR)

  • Cost, Insurance, and Freight (CIF)

The advantage of this new form of classification is that it is clear how to choose INCOTERMS, and they force us to use them more precisely.


Birds-eye View Photo of Freight Containers
North Jakarta, Jakarta, Indonesia

Do Incoterms change?

Yes, therefore, the need to be informed, since these terms and conditions do not remain stable. In general, changes occur every 10 years, which is why they have recently undergone modifications and there is talk of the Incoterms of 2020.


Let's say that the changes are to keep updated the conditions that are more adapted to the current market, because in 10 years there may be changes of interest that require the care of those involved, but that are not contemplated in the previous regulations.


As a result, the terms are renewed, adjusted and improved in order to offer greater and better usability of the incoterms.


We go into detail with some terms to expand this information:


EXW (Ex Works): The seller makes the goods available to the buyer at his establishment or factory. The buyer is responsible for the transport and the costs and risks from that moment on.


FOB (Free on Board): The seller delivers the goods to the carrier designated by the buyer at the port of origin. The seller is responsible for the costs and risks until the merchandise is loaded on board the ship.


CIF (Cost, Insurance, and Freight): The seller is responsible for the transportation and insurance of the merchandise to the port of destination designated by the buyer. The seller is responsible for the costs and risks until the goods are delivered on board the ship.


DDP (Delivered Duty Paid): The seller is responsible for all the costs and procedures necessary to deliver the merchandise at the place designated by the buyer, including transportation, insurance, and customs procedures. The buyer only has to receive the goods at the agreed place.


It is important that the parties involved in an international trade operation are aware of the Incoterms and agree which one will apply to their operation, as this can have significant implications in terms of costs, liabilities, and risks.


Frequent errors when using Incoterms

When a company decides to use Incoterms for the first time, mistakes and misunderstandings can occur. In fact, there is a list of the most common errors, so we will mention some of them so that you can avoid it in the future.

  • Using terms that do not exist. Beyond the 11 terms that we mentioned before: EXW, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAT, DAP, DDP; there's no more. Therefore, if you assign it wrong, you can have troubles.

  • Use of Incoterms for national purchases and sales. These terms were created exclusively for the purchase and sale of international operations, so they should not be used in other types of transactions.

  • Do not complete the name of the chosen Incoterm. The 3 letters of the incoterm are not enough, but you must complete the information, such as the place of delivery, for example.

  • Use Incoterms not suitable for the chosen mode of transport. Each of the Incoterms is designed for a type of transport, so care must be taken when selecting it.

  • Not assessing the risks of the chosen incoterm. Each of the Incoterms gives certain advantages and disadvantages for each of the parties, so it must be clear what they are for each case.

Now that you know about Incoterms, are you ready to take the next step? Undoubtedly, it is a complicated issue, but with the correct help and advice from NEXO LOGISTICS, this process will be so transparent that your cargo remains in safe and expert hands.


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