Incoterms (International Commercial Terms) define the responsibilities of buyers and sellers in international trade. Understanding them is crucial for managing costs and risks.
The 11 Incoterms 2020 Rules
Incoterms 2020 includes 11 rules divided into two categories: rules for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and rules for sea and inland waterway transport (FAS, FOB, CFR, CIF).
Most Commonly Used Terms
FOB (Free On Board): The seller delivers goods onto the vessel. Risk transfers to the buyer once goods are on board. This is the most popular term for ocean freight.
CIF (Cost, Insurance and Freight): The seller pays for transport and insurance to the destination port. However, risk transfers at the port of shipment.
DDP (Delivered Duty Paid): The seller handles everything including duties and taxes. The buyer simply receives the goods at their premises.
Choosing the Right Incoterm
The right Incoterm depends on your experience level, bargaining position, and risk tolerance. WTL's trade advisors help clients select the optimal Incoterm for each transaction, ensuring clarity and minimizing disputes.
Common Mistakes
Using FOB for containerized cargo (FCA is more appropriate), confusing CIF with CIP, and failing to specify the named place correctly are frequent errors that can lead to costly disputes.