In my last blog, I gave a general overview of Incoterms and how important they are when dealing with your overseas suppliers and your export customers.
From an international transportation perspective, they clearly set out who is responsible for the freight costs - this could be all, part or none at all. Crucially, they also define the point at which risk (not title to the goods or/ownership) passes from seller to buyer and knowing this allows the exporter or importer to decide whether to arrange their own marine insurance. I should add that the term marine insurance is used whether the goods travel by ocean or air.
If you import from the USA for example, it's highly likely that they will want to sell to you on Incoterms 2010 Ex Works (EXW). This means that you have to arrange a freight forwarder to collect the goods when ready and the risk is yours from the moment the freight forwarder (or integrator, DHL/UPS etc) collect the shipment from your supplier.
The only exception to this in my experience is in large multi-nationals or when a parent company is selling to a sister company where they may "prepay" the freight charges but this is usually only to arrival at the destination airport or sea port.
However US companies, for whatever reason don't seem to quote incoterms or talk in that language, they're more likely to use hybrid trade terms like Ex Factory (in place of Ex Works) or even more confusingly, they will use the term FOB Factory (which really means Ex Works!). They also use terms like "Freight Prepaid" on their invoices or sometimes "Door to Door".
This is a real area of concern as you really need to clearly agree the Incoterms as when they start using terms like Freight Prepaid, this is vague and without Incoterms, you can't be sure how much of the freight they're paying for (is it to the door, to the port or somewhere inbetween?). You also don't know when the risk transfers to you.
I would always recommend that if you import from the US, you work on Ex Works Incoterms as you are able to control both the service level you receive and of course the costs, provided you know what the market rates are and which providers would be a good match for your needs. This is our area of expertise and we often review clients freight models and clean up grey areas such as Incoterms as well as reducing freight costs and enhancing service levels and communication.
More next time..
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