Understanding Incoterms®: Key Concepts for International Trade

Understanding Incoterms® is essential for international trade agreements between buyers and sellers.

### ® : Essential Guidelines for International Trade
* 🌍 Understanding Incoterms® is crucial for anyone involved in international trade, as they define the **terms of sale between buyers and sellers**.
* 📜 Incoterms®, short for **International Commercial Terms**, are published by the **International Chamber of Commerce** and are recognized by **legal authorities globally**.
* 📅 The latest version, **Incoterms® 2020**, became effective on **January 1, 2020**, and outlines the responsibilities of both parties regarding **costs and risks**.
* 📊 A chart illustrates the different types of **Incoterms®**, including categories for various **modes of transport** and specific **freight terms**.
* 🚚 Starting with EXW (Ex-Works), the seller's obligations are minimal, only covering the **cost of goods and packaging** until they are ready for pickup.
* ⚓ The more popular FOB (Free-On-Board) requires the seller to **cover all costs until the goods are loaded onto the vessel**, after which the buyer **assumes responsibility**.
* 💼 For delivery terms, DAP (Delivered-At-Place) and DDP (Delivered-Duty-Paid) outline the seller's responsibilities for **delivering and clearing goods at the destination**.
* 📝 It is essential for both parties to agree on the **Incoterm® in sales contracts** to prevent misunderstandings and ensure **smooth international transactions**.

(upbeat music) - [Narrator] Understanding Incoterms® is a vital part of International Trade. When exporting products internationally, you must agree to sell your goods based on 11 Incoterms®. Incoterms® is short for International Commercial Terms, which are published by the International Chamber of Commerce and relate to International Commercial Law. They are accepted by governments and legal authorities around the world. The International Chamber of Commerce has published the latest version of Incoterms®, Incoterms® 2020, which came into effect on the 1st of January 2020. Put simply, Incoterms® are the selling terms that the buyer and seller of goods both agree to for the International sale and supply of goods. Incoterms® clearly state which tasks, costs, and risks are associated with the buyer and which are associated with the seller. The Incoterm® states when the seller's costs and risks

are transferred onto the buyer. This chart displays Incoterms® 2020 in an easy-to-understand format. Note this chart should be used as a guide only; for a full and complete description, you should refer to the full version of Incoterms® published by the ICC. The blue section displays the different types of Incoterms® beginning from left to right. The green section shows the groups, Any Mode or modes of transport, and Sea and Inland Waterway Transport. The yellow section shows the Freight Collect Terms and the Freight Prepaid Terms. Starting from the left side is the exporter or the seller of the goods, beginning at the seller's location or warehouse. As you move along to the right, the products leave the warehouse, get loaded on board a vessel or aircraft at the port of loading, get shipped through to the port of destination, pass through customs at the arriving country, and then get delivered further through to the buyer's location.

Along the way, there are set Incoterms® to establish which risks and costs are agreed to be paid by the seller and which are to be transferred to the buyer. The left side of the chart displays the different obligations and charges, and displays which are covered by the seller, and which are covered by the buyer. So starting from the left is the first Incoterm® EXW, which means Ex-Works, or Ex-Warehouse. If the buyer and seller agree to sell goods on Ex-Works terms, then the seller's obligations are simple. The seller will only cover the cost of the goods and the export packaging Ex warehouse. So the seller will manufacture the goods and have them packaged and ready for collection from their warehouse. From then on, all additional costs and risks involved in transport away from the warehouse are covered by the buyer. Moving further along the supply chain, there are FCA, FAS, and FOB Incoterms®. Under FCA, Free-To-Carrier, the seller

will cover export duties, taxes, and customs clearance to get the products prepared for export. Under FAS, Free-Alongside-Ship, the seller will cover the origin terminal port handling charges. Then it moves onto FOB, Free-On-Board. FOB is generally the most popular Incoterm® that is used for containerized trade. When FOB terms are agreed upon, the seller's obligation is to supply the goods and also to pay for all of the additional charges involved to get the goods actually loaded on board the vessel for export. That means the seller will cover all previously mentioned charges and pay for the loading charges to get the goods loaded on board the vessel for export. As soon as the goods are loaded on board, all further associated costs and risks are transferred onto the buyer. The buyer will pay for the international freight and all charges thereafter. If the seller agrees to pay for the cost of freight and carriage, then they can choose to sell the goods

on CFR, CIF, CPT, or CIP Incoterms®. Note that CFR and CIF are similar Incoterms® that cover Sea and inland waterway transport. If the seller agrees to cover the cost of insurance during international sea freight, then they can sell on the CIF Incoterm®. CPT and CIP are similar Incoterms® that relate to any mode or modes of transport, where the seller will agree to pay for the destination terminal/port handling charges. If the seller agrees to cover the cost of insurance during transport, they can sell goods under the CIP Incoterm®. Moving further along, DAP, DPU, and DDP are Incoterms® involved with getting goods delivered, unloaded, and customs cleared at the country of destination. Under DAP, Delivered-At-Place, the seller will cover the costs of delivery to destination. If DPU, Delivered-at-Place-Unloaded is agreed,

then the seller will also pay for the unloading costs at the destination. Finally, if DDP, Delivered-Duty-Paid is agreed, then the seller will also pay for the import duties, taxes & customs clearance at the country of destination. If you have any detailed questions relating to Incoterms®, you should refer to your freight forwarder, the International Chamber of Commerce, or other professional advice. Before products can be shipped internationally, the buyer and seller must agree on the Incoterm® that the goods are sold under. The Incoterm® must be clearly stated in sales contracts and counter-signed by both parties to avoid any misunderstandings. Should any disputes arise, then the details included in the documentation will be referred to. IncoDocs is documentation software used by importers and exporters all over the world. It allows importers and exporters to connect to easily create all of the sales and shipping documentation required for global trade.

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Incoterms® 2020 Explained for Import Export Global Trade

Inco Docs

® are essential for international trade, outlining the selling terms agreed upon by buyers and sellers.

The latest version, Incoterms® 2020, came into effect on January 1, 2020, and clarifies the tasks, costs, and risks associated with each party.

The Incoterms® chart provides a visual guide to the different types and groups of terms, illustrating the flow of goods from the seller to the buyer.

® and Their Impact on Seller-Buyer Responsibilities

® Define the allocation of risks and costs between the seller and buyer in a transaction.

EXW (Ex-Works) places minimal obligations on the seller, while the buyer assumes all additional costs and risks.

As the terms progress to FCA, FAS, and FOB, the seller takes on more responsibilities, with FOB being the most popular for containerized trade, where the seller covers all charges until the goods are loaded on the vessel for export.

® For sea and inland waterway transport, with CIF covering the cost of insurance.

CPT and CIP are for any mode of transport, with CIP including insurance coverage.

DAP, DPU, and DDP focus on delivery, with DDP also covering import duties and customs clearance.

com offers a platform to participate in the future of global trade.

The website encourages users to try it out for themselves.

The service aims to streamline and modernize trade processes.