Freight forwarding Incoterms® play a pivotal role when shipping overseas. These useful terms are used to ensure clarity and reduce potential disputes between buyers and sellers. That said, finding the right one can be hard for exporters. Each of these policies have different rules and guidelines that shippers may struggle to understand.
The International Chamber of Commerce (ICC) is behind the creation of Incoterms® and their application to freight forwarding. They are policies that dictate the responsibilities of importers and exporters in the transfer of goods in global trade. Some favor the buyer or the seller, while others split the tasks more evenly.
Freight forwarding Incoterms® are vital for a successful shipment. With the help of these professionals, you’ll find a policy that suits your needs.
Incoterms® set rules and responsibilities for importers and exporters and are recognized on a global scale. The International Chamber of Commerce (ICC) established these rules to help promote trade between countries.
Incoterms® aren’t required for shipping goods overseas. However, these policies can make sales between buyers and sellers much easier to conduct. Therefore, importers and exporters should find an Incoterm® that works best for their shipment.
Selling goods to overseas buyers can pose many challenges that cause mishaps in a transaction. Fortunately, Incoterms® help shippers resolve these issues.
There are two key reasons why these policies are crucial for global trade.
Thanks to the set guidelines of Incoterms®, buyers and sellers better understand their tasks and know how risk is shared amongst each party.
The last thing a shipper needs to deal with is confusion between them and the receiver. Both exporters and importers should clearly understand what their duties entail. Freight forwarder Incoterms provide buyers and sellers the clarity they need.
These policies help to:
Incoterms® are the same for all buyers and sellers in every country. When someone references one of these policies, the meaning is universally understood. This eradicates ambiguities and ensures that both parties have aligned expectations.
One point of concern in shipping is the division of costs. Since Incoterms® dictate duties to buyers and sellers, each party knows their expenses. This removes confusion about costs.
Exporters need to know where to drop their goods off for transport and where the freight will arrive. Incoterms® determine where the products will be delivered and when risk is transferred.
Finally, documentation is important for both shippers and receivers of international cargo. Incoterms® clarify who is responsible for producing which documents, preventing potential hold-ups at ports or borders.
While these policies are fairly easy to understand, freight forwarders can help shippers that struggle with certain details. They can also identify the best Incoterms® for a shipment.
Every buyer and seller has a different tolerance of risk. Thanks to Incoterms®, perils between each party involved will be clearly identified.
One of the primary functions of these policies is to define the exact moment risk transfers from the seller to the buyer. This ensures that both parties are crystal clear on who bears the responsibility at every stage of the journey.
By knowing the risks, exporters and shippers can do the following:
By clearly defining responsibilities, parties can anticipate potential issues. For instance, if an exporter knows they’re responsible for transport from a specific point, they can make necessary logistical arrangements in advance.
With clear risk boundaries, parties can make informed decisions about insurance. Knowing exactly when perils for each party starts or ends enables buyers and sellers to secure cargo insurance coverage.
Shippers can use freight forwarders to find an Incoterm® that places the least amount of risk on them when exporting. These professionals can also help explain the perils that sellers will face with each given policy.
The ICC created 11 different Incoterms® that can be used in an international transaction. Typically, these policies are renewed or updated every 10 years. While the names might stay the same, the details of each may change.
The 11 types of Incoterms® include:
Each Incoterm® belongs in a category dictated by the starting letter. We’ve organized all the classes and the policies included in each.
| Category | Incoterms Included |
| E | EXW |
| F | FCA, FAS, and FOB |
| C | CPT and CIP |
| D | DAT, DAP, and DDP |
The E category of Incoterms® places most of the responsibility for a shipment on the buyer, while the D category places most of the duties on the seller. Organizing Incoterms® in this manner will help the parties involved in the sale better understanding of how each works.
Sellers should be aware that certain Incoterms® can only be used for vessel shipping, while others are for any method of transport. Therefore, exporters will need to coordinate with their freight forwarder on a transport mode that’s compatible with their chosen policy.
The Incoterms® that apply to ocean shipping includes:
CIF is a great term to use for port to port shipping services. All the other Incoterms® can be used for any mode of transport a shipper wants to use. This includes shipping via truck or rail.
Selecting the right Incoterm® is very important for shippers that want to send goods to another country. With the help of a freight forwarder, exporters can look at a variety of factors to find a policy that works for their shipment.
This includes assessing:
With these variables in mind, the choosing the correct Incoterm® is easier.
When determining the appropriate Incoterm® for a shipment, knowing the nature of the goods will reveal some significant insights.
International shipments can include:
There is a certain level of risk associated with all varieties of cargo. Sellers should determine their ability to bear the perils that come with their shipment. Based on their findings, they can pick an Incoterm® that balances risk in a way that’s beneficial.
The journey a shipment undertakes is as crucial as the cargo itself. There are numerous factors that exporters will need to consider when it comes to the destination and route the goods will take.
This includes:
Certain-country specific regulations can be difficult for shippers to manage. If a seller is unfamiliar with these, it might be beneficial to use an Incoterm® where the buyer takes control of most of the shipment, such EXW or FCA.
Infrastructure in other countries can pose a variety of issues for shippers. Certain nations have limited unloading facilities and equipment. An Incoterm® like DAT (Delivered at Terminal) will help when dealing with these challenges.
Political stability is a serious problem in certain nations around the world. For shippers sending goods to buyers in unstable countries, an Incoterm® like CFR or CIF would be suitable. These policies will transfer risk once items arrive at the port. We’ve included some data on the most unstable nations in the world.
| Country | Rank |
| Somalia | 1st |
| Yemen | 2nd |
| South Sudan | 3rd |
| Democratic Republic of the Congo | 4th |
| Syria | 5th |
| Afghanistan | 6th |
| Sudan | 7th |
| Central African Republic | 8th |
| Chad | 9th |
| Hati | 10th |
Provided by Fragile States Index
These are the most politically unstable nations in the world. Even if a shipper isn’t sending freight to one of these countries, there can still be dangers if cargo travels close to or arrives at a nearby destination.
Economic conditions can influence which Incoterm® is used. If there could be a higher risk associated with payment delays or complications, sellers might prefer terms where they retain more control until payment is confirmed.
It’s likely that buyers will try to use an Incoterm® that favors them in a shipment. Therefore, sellers will have to agree to the same policy. This will require a good amount of discussion between both parties.
When sellers to take on more responsibility in their shipment, this isn’t necessarily a bad deal. If an importer has little or no experience bringing goods into the country, exporters may want to retain control over most of the shipment to ensure efficient service.
The reverse can also be true. Inexperienced shippers mayprefer an Incoterm® that delegates duties to the buyer. In many cases, exporters and importers will agree to a policy that splits tasks in half.
One invaluable service freight forwarders provide is helping shippers select the right Incoterm®. Their wealth of experience, combined with a keen understanding of global shipping nuances, places them in a prime position to offer guidance.
Benefits include:
The job of freight forwarders is to organize shipments on a regular basis. Such experience gives them insights into which Incoterms® work best for certain shipments of cargo.
Freight forwarders are familiar with the intricacies of various shipping routes, from the most direct paths to the ones riddled with transshipments. This knowledge lets them advise shippers on Incoterms® that best align with the journey of cargo. Forwarders can also take into account potential risks and delays.
Navigating the regulations of international trade can be a daunting task. Freight forwarders can help sellers adhere to any customs rules that an Incoterm® requires them to follow. This will make clearing goods for export much easier.
Beyond just logistics and regulations, freight forwarders have a pulse on the economic aspects of shipping. They can guide shippers towards Incoterms® that provide the most cost-effective solutions during specific times.
This will help exporters balance:
As a result, shippers get to walk away from a sale with more money in their wallets. Finally, a freight forwarder can help shippers distinguish between Incoterms® 2020 and Incoterms® 2010.
The ICC permits sellers and buyers to use older iterations of the policies, as long as the parties involved agree to the selection. A freight forwarder will show shippers the differences between old and new Incoterms®.
Navigating the world of Incoterms® can seem daunting, but with the right guidance, it becomes an empowering tool that can streamline your international shipping ventures. USA Freight Forwarding stands as your trusted partner in this journey. One of our trained professionals will help you find the right Incoterm® for your shipment during a high-class consulting session.
We also provide:
Take that leap towards a seamless international shipping experience. Reach out to USA Freight Forwarding today on our contact page and request the service you require. Every great export venture begins with a simple call. Dial (866) 941-8081 and let us chart the course to your shipping success.
