Incoterms® are published by the International Chamber of Commerce and in this, their 100th year, the group has provided an update to the previously issued Incoterms® 2010.
For companies doing business internationally, the Incoterms® are the guidepost by which international buyers and sellers mutually agree to terms of sale that lay out responsibility for transportation-related costs in an international transaction.
There are essentially three headings of terms – the “F” terms, the “C” terms and the “D” terms. Drawing from Wikipedia, the best way to understand each of these terms is to lay them out separately.
F terms place the onus for the majority of the costs on the buyer. One commonly heard and used terms is FCA (or Free Carrier At). This means that from the named place (for example, FCA Hong Kong Airport), all charges from the air freight through to final delivery are for the buyer’s account.
The C terms divide the charges between the buyer and seller more equally depending upon the named location. For example, Cost, Insurance and Freight (CIF) or Carriage and Insurance Paid To (CPT) means that the seller is responsible for arranging the transportation to the point named in those terms and the buyer is responsible for the final stages of the transportation.
The D, or “Delivered” terms, are where the seller bears most, if not all of the cost, to the destination. These terms could include the transport to the final destination, with or without customs clearance, duties and local taxes inclusive or exclusive.
When import purchasing managers and export sales representatives are buying and selling goods for import or export, it is critical that the know under what terms the transaction will take place to avoid surprise additional costs that can turn a profitable shipment into a break even or money-losing one in a hurry.
At RIM logistics, we understand the Incoterms® and our experienced staff are trained to recognize and understand them for both accounting purposes and, when permissible, for taking deductions for non-dutiable imports into the United States.
For more information on the Incoterms® or to order your copy, the US Council for International Business is the American representative agency for the ICC. To learn more about how proper identification of Incoterms® affects valuation and duty calculation, contact your RIM representative to learn more.