Understanding and effectively utilising shipping Incoterms is crucial for navigating the complexities of international trade. Incoterms, short for International Commercial Terms, are a set of globally recognised rules that define the responsibilities, risks, and costs associated with transporting and delivering goods.
To better understand shipping Incoterms and how they work, this article will provide the following information:
What are shipping Incoterms, and how they impact your shipping costs
First published in 1936 by the International Chamber of Commerce (ICC), Incoterms are standardised trade terms that clarify the obligations and rights of buyers and sellers in international transactions. Incoterms establish key parameters such as how shipments should be delivered, who pays for shipping costs, what happens if something goes wrong during shipment, and who bears responsibility for any damage caused during transport.
Incoterms can significantly impact the cost of shipping in international shipping transactions. This is because the specific Incoterm agreed upon between the buyer and seller determines who is responsible for the costs associated with the delivery of goods, including transportation, insurance and customs duties. For example, if the agreed upon Incoterm is CIF (Cost, Insurance and Freight), the seller is responsible for the delivery of goods to the destination port and the cost and risk of loss or damage to the goods during transportation. In this case, the seller will bear the cost of transportation, insurance, and customs duties, which can reduce the shipping cost for the buyer.
What do Incoterms not cover
While Incoterms provide essential guidelines into how to organise international shipping, there are some aspects that Incoterms rules do not address, including:
addressing all the conditions of a sale;
identifying the goods being sold nor listing the contract price;
referencing the method nor timing of payment negotiated between the seller or buyer;
when the title, or ownership of the goods, passes from the seller to the buyer;
specifying which documents must be provided by the seller to the buyer to facilitate the customs clearance process in the buyer’s country; and
addressing liability for the failure to provide the goods in conformity with the contract of sale, delayed delivery, nor dispute resolution mechanisms.
Importance of using the right Incoterms
Selecting the appropriate Incoterm for your shipping arrangements is of paramount importance. This is primarily because importers and exporters need to consider which Incoterm is best suited before the contract of sale is negotiated to prevent unnecessary complications and surprise costs.
Choosing an Incoterm means aligning the buyer and seller on shipping procedures to ensure the timely payment of goods, services, and duties while protecting suppliers, carriers, and buyers.
Key changes in Incoterms for 2023
In order to keep pace with evolving business practices and address contemporary challenges, the International Chamber of Commerce (ICC) has introduced updates to the Incoterms in 2023. Cargoline has summarised the following changes to shipping Incoterms that we are reproducing here:
Definition of “Delivered at Place” (DAP): the definition of DAP has been modified to include deliveries to an inland clearance depot (ICD), which is a facility where goods are cleared for import or export. This change follows the increased usage of ICDs in international shipping to ensure that the responsibilities of the buyer and seller are clearly identified in such situations.
Definition of “Delivered Duty Paid” (DDP): The definition of DDP has been clarified to articulate the seller’s responsibility for all costs and risks associated with the delivery of goods, including customs clearance. This change helps to ensure no confusion over who is responsible for customs-related costs and risks in international trade transactions.
Increased focus on sustainability: Incoterms 2023 places a greater emphasis on sustainability and the responsibility of buyers and sellers to act in an eco-friendly manner. This includes recommending both seller and buyer consider using more sustainable transportation options, such as rail or sea transport, instead of air freight.
Simplification of definitions: The definitions of certain Incoterms have been simplified in Incoterms 2023, making them easier to understand to reduce the risk of confusion. This includes clarifying specific terms, such as the responsibilities of the buyer and seller for loading and unloading goods.
How Luwjistik helps
Using the right Incoterm can help optimise shipping costs and ensure smooth delivery processes. With Luwjistik, you can clearly state if your B2C shipment falls into either of the following Incoterms during the order submission stage:
Delivery Duty Unpaid (DDU): With DDU, the seller is responsible for safely delivering goods to a named destination, paying all transportation expenses, and assuming all risks during transport. This incoterm is similar to DAP, where the buyer, not the seller, is responsible for paying import duties and further transport costs. When you select DDU, we will help contact the consignee so that the consignee can pay the correct duties and taxes.
Delivered Duty Paid (DDP): DDP puts the most obligation on the seller, who would carry the costs and risks of transport, insurance, and customs clearance. We will pay the necessary duties and taxes to the customs office first to smoothen the customs clearance process. You will then be billed on a monthly basis.
Note:
Regardless if you choose DDU or DDP, Cost, Insurance and Freight (CIF) charges may apply when necessary. CIF applies to both B2C and B2B shipping. |
If you encounter any issues during shipment, contact our support team at [email protected] for further information and assistance.