What is the need for Incoterms shipping rules?

Website design By BotEap.comIncoterms or International Trade Terms are defined as the set of terms that are standardized and used in the case of international trade. Companies that are dedicated to shipping goods or companies that receive goods from international markets through ships must be aware of these terms. They help decide the terms of delivery between the seller and the buyer. It also specifies which party is responsible for the insurance of the goods and which party must bear the costs of loading and unloading the products. When these terms are clarified between the parties, there is hardly any confusion to deal with. Thus, to facilitate international transactions, Incoterms appeared for the first time in 1936.

Website design By BotEap.comICC is the organization that established these rules that govern cross-border trade even today. Many changes to the terms have been incorporated to adapt to changes in the global business environment. The correct and intelligent use of incoterms helps companies to enjoy various benefits. The shipping rules mentioned in the incoterms must be respected by the parties for greater clarity in the transactions. The latest modifications to the shipping rules are available in Incoterms 2010 which have brought many useful modifications to the system.

Website design By BotEap.comRisk Reduction:

Website design By BotEap.comThe most important benefit of the shipping rules mentioned in Incoterms help to minimize business risks. International transactions are known to take place between different countries following different languages ​​and business cultures. Therefore, it is always advisable to have everything in writing to avoid any kind of misunderstanding. The use of the correct incoterms makes the contract much more valid and simplified. Therefore, there is no risk involved in the transaction with a foreign company.

Website design By BotEap.comThe sales contract must contain all the obligations of the seller and the buyer who are engaged in the export and import of the products. This eliminates any type of confusion related to the rules of transporting goods from one point to another. In this way, the contracting parties know when the risks and costs involved in the goods in the shipping process would be transferred.

Website design By BotEap.comUnderstanding the rules:

• The rules E.: According to this rule, the agreement specifies that the goods must be delivered EXW, which means “ex factory”. This indicates that the merchandise would arrive at the seller’s factory or at his warehouse. Therefore, the seller is not responsible for any costs related to transportation, freight charges and customs fees.
• The F-rules: This rule involved three terms: FOB, FCA, FAS. Here, the seller sends the shipment to the carrier designated by the buyer. In this case, the seller is responsible for bearing the shipping costs and, thereafter, all other costs are the responsibility of the buyer.
• The C rules: In this type, the seller contracts the transport but does not take into account any risk or damage to the merchandise after the products are shipped. Related terms here are: CIF, CFR, CIP, CPT.
• The D rules: The seller bears any risk involved in delivering the goods to the buyer’s door. The terms used are DAP, DDP, DAT.

Website design By BotEap.com So you will see that each risk factor has been defined so well in the rules that both parties can clearly understand what their obligations are. There is no room for confusion if one understands the terms well. It not only facilitates smooth transactions, but is also helpful in strategic logistics management.

Website design By BotEap.comMost small businesses prefer to transact under C terms. This ensures that the buyer has more understanding when the shipment is in large quantity. Until the moment the cargo arrives at the port of origin, all costs are borne by the seller. Thereafter, the buyer bears the responsibility for the expenses up to the port of discharge. So, more or less the burden of risks and costs are divided equally between the parties. The latest version of Incoterms that came out in 2010 has also defined FOB Incoterms well. This has made the segregations quite understandable and understandable.