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What Are Incoterms?

Incoterms stand for "International Commercial Terms", acting as regulators for contractual conditions in international trade. Incoterms sets the structure for international sales contracts, defining the rights and duties of both importers and exporters by establishing a standard set of rules. The International Chamber of Commerce is responsible for their origin and updates.

Thus, it's clear that incoterms play a unifying and ordering role in trade processes. They help establish secure transaction standards, ensuring successful dealings and fostering better integration between trading parties.

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In this article, we delve deeper into incoterms and their significance.

How Are Incoterms Categorized?

Per the Chamber, incoterms outline responsibilities such as:

  • Who bears the cost for transactional services, including freight and cargo insurance;
  • Transaction timelines;
  • Points of origin and delivery;
  • And the set limits and risks between involved parties.

Categories and Breakdown of Incoterms

Incoterms are categorized as E, F, D, and C:

  • Category E: Incoterms in this category stipulate that the buyer picks up the merchandise from a designated location and assumes all risks. In simpler terms, the seller merely makes the goods available at their premises.
  • Category F: The buyer takes on the costs of freight and insurance.
  • Category C: The seller handles the transportation of goods.
  • Category D: Sellers assume all risks and are responsible for delivering the goods.

Key Incoterms include:

  • EXW – Ex Works: Goods are made available at the seller's location, with the buyer handling the subsequent processes.
  • FOB – Free On Board: The seller loads the goods onto a vessel. The buyer bears transport and insurance costs and risks.
  • CFR – Cost And Freight: The seller delivers goods to the destination port, covering their costs and freight. The buyer manages insurance.
  • CIF – Cost Insurance And Freight: The seller delivers goods to the destination port, bearing costs, insurance, and freight. The buyer handles customs procedures and transport to the final destination.
  • DDP – Delivered Duty Paid: The seller delivers goods to their final destination, covering all associated costs.

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