What Are Incoterms?

Activity 4 Incoterms

Sherry Amero 676-269651

What are Incoterms? I had no idea this term existed until recently. So, there is more of a challenge when dealing with International transactions, and parties linked to the transaction have to understand how these terms of sale influence the transportation decision making. Transportation managers have to be careful about when and where the title to the goods change’s hands, because even a seemingly straightforward international transaction involves long distances, different modes, and logistics intermediaries, government inspections, duties, and opportunity for damage or delay.

Efficient freight flows between countries is facilitated by incoterms. These rules in the incoterms are international rules that are accepted by legal authorities, governments, and practitioners worldwide for the understanding of the most commonly used terms in international trade. Matters address by theses rules are related to the rights and obligations of the parties to the sale contract with respect to the delivery of goods sold.

The terms of sale decisions help to clarify questions such as who is going to be responsible for the control and care of the goods while in transit, FOB origin or destination etc. Who is going to bear the various costs, insurance and so on. Incoterms have been changed many times since 1936 with the most recent revision being in 2010 to simplify the trade terms. The options in the incoterms were reduced from 13 to 11, and Incoterms 2010 have been clarified so they can apply to both domestic and international freight.  

The four primary groups of Incoterms are; E terms where the responsibility is taken by the buyer from the point of departure, F terms are terms where the seller doesn’t pay for the main carriage, C terms are when the seller pays for the main carriage, and D terms where the seller will take full responsibility to an arrival point. Using FOB terms or Incoterms can be quite beneficial for organizations in taking control of freight. Purchasing power can be leveraged, inbound and outbound flows are coordinated, and freight is consolidated to achieve greater efficiencies, as well as manage risk, have greater freight visibility, and ensure available equipment capacity. So, this can be a strategic opportunity to improve transportation and SC performance.