Understanding The "International Commercial Terms" For Global Trade

Introduction to INCOTERMS 2020:

In my latest webinar about managing with INCOTERMS, I felt their is a need to educate more about the concept and its applications given the current global environment in international trade.

INCOTERMS, short for International Commercial Terms, are globally recognized standards that define the responsibilities of buyers and sellers in international trade. The latest revision, INCOTERMS 2020, was introduced by the International Chamber of Commerce (ICC) to adapt to the evolving landscape of international commerce.

?

Purpose and Application:

INCOTERMS 2020 facilitate smoother transactions by clarifying who is responsible for tasks such as transportation, insurance, and customs clearance at each stage of the shipping process. They are crucial for businesses engaged in global trade, providing a common language to avoid misunderstandings and disputes.

?Benefits and Importance:

INCOTERMS 2020 provide clarity, reduce risks, and enhance efficiency in international transactions. They help businesses navigate complex trade regulations and optimize logistics processes.

Key INCOTERMS 2020 examples:

·??????? EXW (Ex Works): Seller's responsibility ends at their premises.

Example: A manufacturer in Jordan sells goods to a buyer in Saudi Arabia. The seller makes the goods available at their premises, and the buyer arranges all transportation, export, and import procedures.

Case Study: Choosing EXW allowed the buyer to control shipping logistics, ensuring cost efficiency and meeting their specific import requirements.

?

·??????? FCA (Free Carrier): Seller delivers goods to a carrier appointed by the buyer.

·??????? CIF (Cost, Insurance, and Freight): Seller arranges and pays for transportation to the port of destination, including insurance.

·??????? DAP (Delivered at Place): Seller is responsible for delivery to a named place.

?·??????? DDP (Delivered Duty Paid): Seller is responsible for all costs and risks until goods are delivered to the buyer's premises.

Example: An electronics manufacturer in UAE sells goods to a retailer in the Jordan. The seller is responsible for delivering the goods to the retailer's premises and covering all costs, including duties and taxes.

Case Study: Using DDP, the retailer benefited from hassle-free delivery and predictable total costs, while the seller managed the complex import procedures.

??

Decision-Making Factors

Automotive parts manufacturers in Thailand often select INCOTERMS based on factors such as cost optimization, risk management, and customer requirements. For example, EXW can be chosen for cost efficiency, while DDP is selected for streamlined operations and customer convenience. the table below shows responsibilities of both parties and tasks that can be assigned based on the INCOTERM

We can always follow a process based approach to understand which INCOTERMS is more suitable to our situation:

?

Conclusion:

?INCOTERMS 2020 are indispensable tools for businesses engaging in global trade, offering standardized terms to streamline transactions and mitigate risks. Understanding and correctly applying these terms is essential for successful international commerce.

Learn more as you watch my webinar below

INCOTERMS Webinar