Incoterms are the selling terms that the buyer and seller of goods both agrees to. The Incoterm clearly states which tasks, costs and risks are associated with the buyer and the seller. The Incoterm is agreed between the buyer and seller and states when the seller’s costs and risks are then transferred onto the buyer.
The Tradeoff: Responsibility vs. Reward
As an exporter, what Incoterms are right for you? It depends on a few factors:
What is your target revenue over the next 12 months compared to your last 12 months?
The Incoterms you choose determine the size of the market to which you can sell. For example, with Ex Works, the Buyer is responsible for everything except packaging. With Delivered Duty Paid, the Buyer is responsible only for unloading the product.
In general, there will be more potential Buyers for your product with Delivered Duty Paid. With that, comes the responsibility to deliver the product to the Buyer's door and to manage the associated risks.
Everything in business has an associated risk. It is important to understand the unit economics of shipping your products, and how much risk is tolerable for your situation.
Compliance & Required Documentation
Knowledge of compliance procedures and how to submit the required documentation is always essential. By studying the regulations and developing systems to ensure that the rules are always followed, an exporter can reduce the risk of issues.
Customs Brokers & Third-party Logistics
Exporters can also reduce shipping risk by hiring a Customs Broker. They file the appropriate customs documentation and can potentially address issues with shipments.
Third-party Logistics providers are companies that are hired to physically move goods. Some large logistics providers even have their own customs brokerage departments.
Have questions? Schedule a Supply Chain Consultation today, and we'll be happy to help.