What are Incoterms?
Incoterms, or International Commercial Terms, refer to the international trade terms used during international delivery to ensure no parties interpret any terms differently. These terms were first developed by the International Chamber of Commerce(ICC) in 1936. With global shipping becoming more prevalent, these incoterms are useful as they describe all costs, risks, and tasks associated with the international goods transaction.
Significances of Incoterms in E-commerce
International businesses are required to follow incoterms to have a seamless international trade engagement. It has standardized rules and terminologies to avoid confusion. Here are the significances of incoterms:
- Incoterms are used to agree upon global trade obligations and contractual terms. These eliminate the ambiguity between nations while trading or shipping, making the process simpler.
- These are updated and clarified by the International Chamber of Commerce (ICC) to maintain standardization and specificity of international trade aspects.
- Incoterms are an important part of international shipping. These terms answer questions like who is responsible for customs clearance, import costs, shipping costs, insurance costs, and more.
Prerequisites of Incoterms
Here are some of the prerequisites to incoterms:
- With new developments in the e-commerce world, incoterms are updated every ten years. Businesses that ship outside of their country should have an updated list of these terms handy.
- Businesses that ship outside of their country should use the incoterms they think are viable for that transaction. Incoterms are usually listed on commercial invoices.
Use Case with Incoterms
There are many commonly used incoterms in exports and international shipments. Some of these terms are used for B2B transactions, while some are used for B2C transactions. Some common incoterms are: EXW (Ex Works), CPT (Carriage Paid To), and CIF (Cost, Insurance, and Freight), DDP (Delivered Duty Unpaid), and CPT.