Silk Bridge Journal

Definition

Incoterms® are international commercial rules developed by the International Chamber of Commerce (ICC) that define the allocation of responsibilities, costs, and risks between sellers and buyers in international transactions.

The Incoterms® rules specify, among other things, who arranges and pays for transportation, who is responsible for export and import formalities, and at what point the risk associated with the goods transfers from the seller to the buyer.

They do not, however, determine matters such as the price of the goods, payment method, or the point at which ownership of the goods is transferred.

Why Should Importers Know This?

Understanding Incoterms® is one of the foundations of safe importing. The choice of a particular rule can have a significant impact on the total cost of an order, the importer's responsibilities, and the way transportation is organized.

It is therefore not enough to know that a quotation is based on “FOB” or “CIF”. An importer should understand exactly which costs and risks are included under the selected rule.

Related Terms

FOB · CIF · EXW · DDP · FCA · CFR · Landed Cost · Customs Clearance

In Practice

Before accepting a quotation, it is important to ensure that the Incoterms® rule has been correctly specified together with a precise location or port, for example: FOB Shanghai, Incoterms® 2020.

Before accepting a quotation or placing an order, make sure you fully understand the selected Incoterms® rule – it can directly affect the costs and risks associated with the entire import process.