Very simply explained, Incoterms
Incoterms
reflect the time and place of delivery of a commodity and the associated risks. They are practically always used in imports, and are agreed in the purchase-sale contract.
To sum up, incoterms indicate the extent of the responsibility of each of the agents involved (importer and exporter) in terms of deliveries, transport, insurance, customs, etc. When a commercial transaction is to be carried out, the most convenient Incoterm for both parties should be used. However, it may be required by one of them, usually the supplier.
It could be the case that the supplier wants us to pick up the goods at their facilities (Incoterm EXW), or in the most extreme case, that they can take them to the destination point in our country (Incoterm DDP).
Example of use:
We found a wonderful supplier in China. In its web page it already indicates that the Incoterm used for the shipment of goods is FOB ( this is very common).
We look at what the FOB Incoterm implies for us as importers, and for him as an exporter:
FOB = Free On Board
-The seller delivers the goods on the vessel. It also contracts transportation through a freight forwarder or consignee, but the cost of transportation is borne by the buyer.
-Must be used for general cargo, not for bulk cargo.
-The FOB Incoterm is used exclusively for transport by ship, either sea or inland waterway.
As we can see, the supplier will hire a company for the transport and will leave the vessel loaded for us. However, we, as importers, will have to pay for this transportation.
At that time the risk of loss or damage to the goods is also transferred from the seller to the buyer. If something breaks after loading, that’s our problem.
From here, the buyer (i.e. us) pays the costs of freight, unloading at the port of destination, customs and insurance if any.
As you can see, there are a number of formalities and risks to be assumed when importing. It is best to hire a company that can manage the operation so that we only have to worry about selling the merchandise, or be patient and continue studying 😉
The analysis in the example should be applied to each of the incoterms….. but don’t worry! In the next post we will talk about the most usedIncoterms to import from China, their advantages and disadvantages.
If you want to import from China, do not hesitate to contact us without obligation.
