Incoterms (otherwise known as International Commercial Terms) are commercial terms made by the International Chamber of Commerce that are used for international commercial transactions and processes. Knowing these terms will make it easier for different organizations or institutions to communicate regarding their plans on trade transportation. For an introduction, let us define a few of the most used Incoterms in status quo: EXW, FOB and CIF.
Ex Works (EXW)
Ex Works is a term which basically means that the seller should make the goods ready for pick-up in his or her place of business. All transportation costs are shouldered by the buyer. This particular arrangement benefits the sellers more at the expense of the buyer. All the seller has to make sure is that the good is packaged and ready for pick-up, while the buyer has to think of the transportation costs, making sure that the goods are safe for transport, and ensuring that it reaches its destination without damaging the goods.
Free on Board (FOB)
As dictated in the standard published by the International Chamber of Commerce, Free on Board (FOB) is only utilized when referring to sea freight shipments. Under FOB shipping, the seller will shoulder the costs and risks of the goods up until the goods are loaded in the ship. The seller must also take care of the clearance for the export of the goods. Afterwards, the buyer will take care of the cost of the marine freight transportation, fees for the bill of lading, the insurance, and the unloading and transportation of the goods starting from its arrival at the port up until it reaches its final shipment destination.
Cost, Insurance and Freight (CIF)
Cost, Insurance and Freight is a term which requires the sellers to arrange the transportation of the goods until the port of destination. CIF shipping also states that the seller must provide the documents needed in order for the buyer to successfully obtain the goods.
Knowing the differences between various incoterms will make the communication of the transportation of goods smoother and more manageable. In order to avoid miscommunication, it is better to familiarize yourself with incoterms and their meanings.
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