The Top And Common Incoterms Used Around The World
Which common Incoterms used frequently around the world? Referring to the latest version of Incoterms, there are 11 different sets of trade codes that you can use, with each of them have their own distinct procedures, risks, and ‘who pays what’ that you can use as part of your decision making process, when exporting or importing products. Below are the top 5 and most common Incoterms used around the world.
Incoterms are created to simplify the negotiation and business process between two entities when they’re from different countries. Different countries with different policies, regulations and even culture makes the whole deal can be daunting and creating uncertainties.
Hence, Incoterms is created to save you time and lets the involved parties to work out finer details on the go.
Further reading: a comprehensive reference on Incoterms
What Are The Most Common Incoterms Used?
DDP – Delivered Duty Paid
The seller will deliver the goods that are cleared for import and are ready to be transported at a designated place the buyer wants (usually at the buyer’s premise, be it at Headquarters or it’s branch).
The seller bears ALL the costs and risks associated with bringing the goods, as well as obliged to clear for export documentations (as seller is exporting the product) and import documentation (seller doing this for the buyer), and pay any charges/taxes/duty necessary.
EXW – Ex Works
The supplier will send the product either at the seller’s place (warehouse, factory, HQ, etc) or other designated place agreed upon in advance. The buyer is then need to do all the loading and unloading the goods, clearing it for export/import documentations where applicable.
FAS – Free Alongside Ship
The seller will deliver the product along side the vessel nominated by the buyer at designated port for shipment, and the buyer will bears all the cost from the moment onward such as paper works for import, tax/duty charges, as well as risks.
CIF – Cost, Insurance and Freight
An agreement is made between buyer and seller where the seller delivers the product on board and the risks associated passes to the buyer at that instant.
The seller will pay the costs and freight necessary to bring the product at the port of destination (usually buyer’s country), as well as insurance for buyer’s risks (loss and damage) during shipment. Upon reaching the destination port, buyer will be responsible to prepare documents, freight and other matter necessary to bring the product to the buyer’s intended place.
*that said, the insurance is understandably for minimum coverage. For premium, total security will be at buyer’s expenses and the seller will agree to do so (usually they will).
FOB – Free on Board
The seller will deliver the goods on a vessel nominated by the buyer, at the port of shipment (usually at the seller’s port of origin). The buyer will take over the risks and costs involved as soon as the goods are on board, right to the storage.
Why Don’t We Use Just One Incoterms As Standard?
That certainly make the whole process easier and the world will be a better place.
As seen from here, the modes of transportation for both DDP and EXW are slightly different than the rest – there are no ships involved, as port of shipment is included in the terms. And that means a slightly different procedure and paper works altogether.
Hence, it can be said for both DDP and EXW are the best terms compared with other Incoterms that have no ship as their mode of transport, while the rest (CIF, FOB, and FAS) are the best among other terms that uses a ship as mode of transport.
Conclusion
The top five Incoterms mentioned here are the most popular and preferable use for import/export deals around the world. As you can see, the overall process is quite understandable and in a way can make the whole negotiations easier and quicker.
Further reading: Compilation of articles relating with export.
At Venturette Solutions, we have seen a pattern where both sellers and buyers alike uses Incoterms as stated in this post, with the total count leaning heavily on either CIF or FOB, likely due to the fact these two terms poses less complications and easily understandable between two parties.
And in our opinion, opting for either these two terms can certainly increase your chance to get business deals from both buyers and sellers alike.
If you think we can add value to your company in reaching global, email us at operations@venturetteconsulting.com and we’ll proceed from there.
