Incoterms: Here's Why They Matter

How can incoterms help improve freight transport?

When organizing international trade and logistics, it is crucial to choose the right incoterm. This incoterm determines who is responsible for organizing the transport and who bears the costs of loading, transporting and unloading the goods. Using the right incoterm can make a significant difference to a company's supply chain and profitability. Let's take a look at the three most common incoterms: EXW, FCA, and FOB.

EXW — Ex Works

EXW is the simplest incoterm. Here, the seller is responsible for delivering the goods to the buyer at the seller's own factory, warehouse or production facility. The buyer is then responsible for all costs and risks from the moment the goods leave the seller's premises. This can be useful for the seller, as they do not have to pay transport costs. However, it can be risky for the buyer, as they are responsible for all costs and risks from the moment the goods leave the seller's factory.

FCA — Free Carrier

At FCA, the seller is responsible for delivering the goods to a carrier chosen by the buyer at a location specified by the seller. The seller is responsible for loading the goods onto the means of transport. From that moment on, the buyer is responsible for the costs and risks of the transport.

FCA is a very popular incoterm because it is more flexible than EXW. For example, the buyer can decide which carrier to use and can have the goods delivered to a location of his choice. This gives the buyer more control over the transport process.

FOB — Free On Board

FOB is similar to FCA, but here the seller is responsible for loading the goods onto a ship at a port specified by the buyer. From that moment on, the buyer is responsible for all costs and risks of transport.

FOB is often used when transporting goods by sea. The buyer can decide which ship to use and has the freedom to have the goods delivered to a port of his choice. This can give the buyer more control over the transport process.

3 examples that show that it is important to choose the right incoterm

1. Unforeseen costs: Imagine importing a container of goods from China and the Incoterm is FOB. This means that the seller is responsible for the goods until they are loaded onto the ship. But what if unexpected costs arise while loading the container, such as additional labor costs or costs for moving goods? If no clear agreements have been made about who is responsible for these costs, this can lead to disputes and financial losses.
2. Import duties and taxes: When importing goods from China, import duties and taxes must be paid to the customs authorities in the destination country. If the correct Incoterms have not been chosen and the costs of these charges are not clearly agreed, this may result in additional costs and delays in releasing the goods to customs. For example, when your supplier states on the purchase invoice that it is EXW, but there are also transport costs on your purchase invoice. This is not possible, because EXW means that your supplier only takes care of production. This may also lead to conflicts between the buyer and the seller (the supplier) about who is responsible for paying these fees.
3. Customs delays: If the correct Incoterms have not been chosen and the documents for releasing the goods at customs are not filled out correctly, this may result in delays in releasing the goods. This can lead to additional storage and transport costs and dissatisfied customers. It is therefore important to choose the correct Incoterms and to ensure that all required documents are completed and signed correctly to prevent customs delays.

Conclusion

In conclusion, the Incoterms EXW, FCA and FOB are the most appropriate options for importers importing goods from China. These Incoterms provide clarity about who is responsible for the costs and risks during transport, and reduce the risk of additional costs and customs delays.

However, it is important to choose the right Incoterms and to comply with them correctly to prevent unexpected costs and delays. It can therefore be useful to seek help from an experienced freight forwarding company such as Boloo Forwarding, which has years of expertise in the industry and can help you choose the right Incoterms for your specific import needs.

By working with a reliable partner such as Boloo Forwarding, you can ensure that your import process runs smoothly, without headaches, and that you get the best value for your money. Contact us today to learn more about our services and how they can help you with your import needs when importing products from China.