Choosing The Right Incoterms Suitable For Your Business

Choosing The Right Incoterms Suitable For Your Business

Choosing the right Incoterms suitable for your business is certainly takes a significant part of your export/import business. Deciding the wrong one can be a hassle and certainly losses that can simply be avoided with thorough research and finding it’s compatibility with your business model.

What Is Incoterms?

For a background reading, Incoterms is a set of rules designed to eliminate any lengthy discussions and uncertainties involved in the business deal. And it’s quite important considering you’ll be dealing with someone from other country.

To date, the latest version consist of 11 sets of terms, with their own pros and cons, features, and some are limited to a certain modes of transportation. And to put in layman’s terms, Incoterms is basically about ‘who pays what’.

choosing the right incoterms
Listed Incoterms to date, with highlighted ones are the top and most common terms used around the world

Further reading: an easy guide to Incoterms and related links, all in one page.

Choosing The Right Incoterms: The Easy Approach

Incoterms For The Suppliers

Decide if you want to pay the whole delivery and shipping to your buyer’s location, or only halfway through it (which can be either from you chosen location, or your closest port of shipment). do you have the capacity to bear the risks and costs involved during shipment?

There are also possibility where over time you’ve been doing business with your preferred freight forwarders that you get special rate and keep the whole costs and prices down, or vice versa, which can also affects your preferred Incoterms as well.

Decide which terms that provides you a competitive edge, as well as being price and time efficient at the same time.

Further reading: Benefits of exporting your product, for overseas customers.

Incoterms For The Buyers

For buyer, deciding the right Incoterms means you need to decide how much you’re willing to spend and bear the risks associated with the shipment. You might have a leverage with carrier/freight forwarders that you can use to negotiate a better Incoterms and keep the whole cost down.

Talk to your suppliers about the finer details for a win-win solution.

Example

For example, consider this situation where the buyer wants to purchase a product in 1×20’FCL. And the suitable supplier uses a FOB as Incoterms.

FOB means the supplier will deliver the product at a vessel nominated by the buyer, with the risk will pass to the buyer as the goods are on board.

Some reasons why that supplier chose FOB probably because they don’t have the capacity to deal with keeping track of the shipment, or negotiate effective rates with freight forwarders, or simply that it’s not in their business procedure. And they only need to decide in first few steps of shipment: the origin services and paper works relating with export and custom clearance, as well as basic handling charges.

Source: Avanti Freight Management

At the same time, with FOB you have the advantage to decide freight forwarders of your choice, that can be faster, more efficient, or perhaps you get a special rate with the company.

That said, choosing FOB doesn’t mean both parties will follow word by word; if the supplier of your choice have the advantage with the freight forwarders and they can confirm that the whole shipping costs can go cheaper, you can simply ask them to do the shipping cost on their name and charge it to your account instead.

Further reading: Top Incoterms used regularly around the world.

Conclusion

Choosing the right Incoterms suitable is certainly important. And at the same time, suppliers and buyers alike can negotiate together for an efficient process and costs, while maintain goodwill between both parties.

Do you know which Incoterms are the most commonly used around the world? Click here.

Further reading: how our team match your requirements with our extensive network of suppliers all over the world.

Reference: 1,2,3

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