11 Proven Incoterms must know?

Here are the 11 Incoterms defined in Incoterms 2020:

Incoterms, short for International Commercial Terms, are a set of standardized trade terms published by the International Chamber of Commerce (ICC). They define the rights and obligations of buyers and sellers in international trade transactions, specifically with regard to the delivery of goods, transfer of risks, and allocation of costs between the parties involved.

The current version of Incoterms is known as Incoterms 2020, which was released in September 2019. It replaced the previous version, Incoterms 2010, and is widely used by businesses and organizations engaged in international trade.

EXW (Ex Works):

The seller makes the goods available at their premises, and the buyer is responsible for all transportation and export-related formalities.

EXW (Ex Works): In this Incoterm, the seller’s responsibility is limited to making the goods available at their own premises or another named location, such as a factory or warehouse. The buyer is responsible for all subsequent activities, including the loading of goods onto the transportation vehicle, export clearance, and transportation to the final destination.

Key points of EXW:

Delivery and Transfer of Risk: The seller fulfills their obligation by making the goods available at their premises or another agreed-upon location. The risk passes from the seller to the buyer at that point. It means that the buyer bears all risks and costs associated with transportation and export clearance from the seller’s premises onwards.

Seller’s Obligations: The seller is responsible for preparing the goods for pickup by the buyer, ensuring that they are packaged, labeled, and ready for transport. They must provide the necessary documentation, such as commercial invoice, packing list, and any export licenses or permits required.

Buyer’s Obligations: The buyer is responsible for arranging and paying for all transportation, including loading the goods onto the vehicle. They must also handle export customs formalities, obtain any necessary export licenses or permits, and bear the costs and risks associated with the transportation and import clearance at the destination.

In most simple terms let us say I am an Exporter of Onions and, I store onions in my warehouse located in Lucknow Uttar Pradesh India. Now I got an importer from Nepal and trying to negotiate the price. So price depends on the factor which affects the cost to the importer. Different countries have different languages. To reduce the language barrier and easy to understand, ICC introduce languages for exporters and defined terms related to shipping and obligations and the right to protect both buyer and seller.

Here comes Ex Works, which means if I asked to Importer if you want goods pick direct from my warehouse to your address (country). Then I will quote a lower price because it’s not my responsibility for transportation, and customs clearance in both countries India and Nepal. So my responsibility is almost negligible while the importer’s responsivity will be more until the goods do not reach his warehouse.

In summary, EXW places the maximum responsibility on the buyer, as the seller’s obligations are fulfilled by making the goods available at their premises. It’s crucial for both parties to have a clear understanding of their responsibilities and to communicate effectively to ensure the smooth execution of the transaction.

FCA (Free Carrier):

The seller delivers the goods to a carrier or a named place, usually at their premises or a nominated location.

FCA (Free Carrier): In this Incoterm, the seller is responsible for delivering the goods to a carrier or another named place, which could be the seller’s premises or another agreed-upon location. The risk transfers from the seller to the buyer at the point of delivery to the carrier or named place.

Key points of FCA:

Delivery and Transfer of Risk: The seller fulfills their obligation by delivering the goods to the carrier or another named place. The risk transfers from the seller to the buyer at that point. It means that the buyer bears the risks and costs associated with transportation from the delivery point onwards.

Seller’s Obligations: The seller is responsible for delivering the goods to the carrier or named place agreed upon by the buyer. They must ensure that the goods are prepared for loading onto the transportation vehicle. The seller’s responsibility ends when the goods are delivered to the carrier or named place, and from there, the buyer assumes responsibility.

Buyer’s Obligations: The buyer is responsible for arranging and paying for transportation, including choosing the carrier and contracting them. They are also responsible for bearing the costs and risks associated with the transportation from the delivery point to the final destination. Additionally, the buyer must handle any export formalities, such as export licenses or permits, and import customs clearance at the destination.

Let’s understand these terms in a more easy way. I am an Onion exporter from India and a buyer from Nepal. So we decided to choose FCA terms in shipping.

What does this mean and what is going to change by choosing these terms while negotiating the price of onions?

Buyers say that I can’t pick up goods from your warehouse in Lucknow but you have to send these goods direct to my forwarder located in Gorakhpur. So Transportation costs from Lucknow to Gorakhpur will come upon the seller’s side and also the risk of safe transportation till Gorakhpur U.P. will be bear by the seller. So definitely seller will take the onions cost, transportation cost till Gorakhpur U.P., and Insurance of safety for transportation till the final location. So the cost will be a little higher but the buyer has compared to low risk of transportation till the place is advised by the buyer.

In summary, FCA places the responsibility of delivering the goods to the carrier or named place on the seller, but the buyer assumes responsibility for transportation and associated costs from that point onwards. It’s important for both parties to have a clear understanding of their responsibilities and to communicate effectively to ensure the smooth execution of the transaction.

in this blog, we discuss only 2incoterms, for know export related business please contact www.dofortimpex.com.

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