Copy URL to Clipboard
What are Incoterms®? Many importers that are new to international trade don’t know about or understand their importance in trade. Without these rules, buyers and sellers can have a difficult time understanding one another when conducting an international transaction.
The International Chamber of Commerce describes Incoterms® as a set of global rules that define the responsibilities of buyers and sellers in international trade. While they’re not required, these terms define who handles shipping, insurance, and customs duties. This reduces misunderstandings and disputes in global transactions.
There are many details surrounding the various rules contained within Incoterms ®. As an international buyer and/or seller, it’s important to be aware of these. Our comprehensive guide below provides you with everything you need to know.
Incoterms® stand for International Commercial Terms. They’re a set of globally accepted rules established by the International Chamber of Commerce (ICC). These terms help buyers and sellers understand each other’s responsibilities.
This includes:
Before an international shipment takes place, buyers, and sellers agree on each of their defined roles. This leads to a concrete understanding and agreement between the two parties about who is responsible for the various aspects of the shipment.
In the case of damage or loss of goods in an international shipment, these terms come into play. The terms that are agreed upon will determine who is responsible for covering the cost for the loss or damage to the goods. This coverage can come from direct reimbursement from either the buyer, seller, or cargo insurance provided by one of the parties.
Want to learn more about how to use Incoterms? Read our article to find out.
In total, there are 11 different types of Incoterms ®. Each rule can also be organized into a corresponding category. We’ll go into the different types of Incoterms® and categories.
Of the 11 Incoterms, seven of them can be used for multiple modes of transport, while four of them can only be applied for ocean transport. We’ve listed the seven Incoterms® that buyers and sellers can use for any mode of shipping.
These include:
The final four Incoterms® are used for ocean shipments and include::
It should be noted that DAT is called DPU (delivered at place unloaded) under Incoterms® 2020. Buyers and sellers can use this version of the terms or an older iteration, as long as both parties agree on it.
Incoterms® can also be broken down based on the category. Importers can figure out which one each belongs to based on the starting letter of a specific term.
| Category | Corresponding Incoterms® |
| C | CFR, CIF, CPT, and CIP |
| D | DAT (DPU under Incoterms®), DAP, and DDP |
| E | EXW |
| F | FCA, FAS, and FOB |
By putting Incoterms® into their respective categories, U.S. importers will be able to more easily remember the purpose of each one.
Incoterms® aren’t mandatory, but they are beneficial for both sellers and buyers in international trade. The decision to use these rules comes down to the preferences of the buyer and seller that are involved.
It’s certainly advisable to use Incoterms® conditions for an international shipment. Without designating specific rules and conditions of a shipment, accountability is left up in the air. This can lead to disputes and other problems when trying to reconcile damages or loss. Language barriers can also lead to communication issues between buyers and sellers.
Some advantages of Incoterms® that will help importers overcome these challenges include:
Despite not being required, it’s best to use these terms when importing goods from a seller from overseas.
Learn more about the advantages of Incoterms® in our article discussing the benefits of these rules.
With so many Incoterms® to choose from, it can be difficult for importers to find one that will be beneficial for them in a transaction. Fortunately, we’ve identified six key terms that will help U.S. buyers bring goods into the country.
These include:
Each of these Incoterms® either place more responsibility on the seller (exporter), or evenly divide responsibility between buyers and sellers. Importers should try to use these rules before purchasing their goods.
That said, it’s likely a seller may try to argue for Incoterms® that’s beneficial to them in a transaction. Therefore, importers should be ready to negotiate on a rule that helps both parties.
As we’ve explored the intricacies of Incoterms® and their pivotal role in international trade, it’s evident that understanding and implementing them correctly can be difficult. Fortunately, the team at USA Customs Clearance will be able to help you through these intricacies. We also offer a variety of services and products that can help when importing
These include:
Our services are designed to provide you with peace of mind and a clear path through the complexities of customs clearance. With our expertise in Incoterms® and customs regulations, we empower with the ability to navigate the challenges of international trade confidently.
Reach out to the team at USA Customs Clearance today by calling at (855) 912-0406 for more information or get started with the services we’ve listed.
We work with you every step of the way to ensure a smooth and stress-free customs experience.
Copy URL to Clipboard
Add your first comment to this post