Most businesses thrive very nicely without ever having heard the phrase “Incoterms,” and choose instead to leave the intricacies of international shipping to their logistics provider. Except, it is worthwhile for a business to have at least cursory knowledge of some of the more pertinent rules and practices that govern the how’s and why’s of international shipping.
Incoterms fall into that category. Incoterms are the set of globally recognized standards that establish uniform shipping practices, so there is consistent understanding about terminology and expectations.
For example, imagine driving in a world without traffic rules, where every driver was left to determine the “rules of the road.” Not a pretty picture, right? Same thing could happen in the shipping industry if countries defined a term like “delivery” differently.
Incoterms were first introduced by the International Chamber of Commerce in 1939. Since then, they have been revised eight times in order to reflect current industry practices. Most recently, new Incoterms took effect on January 1, 2011 that reflect post-9/11 security mandates, advances in technology, and new customs free zones and international trade alliances.
For the truly interested, you may want know that there are currently 11 “official” Incoterms, and the ICC maintains that list and their definitions at http://www.iccwbo.org/incoterms/id3040/index.html. In its most recent update – Incoterms 2010 – two new terms were added, and four were deleted:
Incoterms 2010 applicable for all modes of transport:
- EXW: ex works
- FCA: free carrier
- CPT: carriage paid to
- CIP: carriage and insurance paid to
- DAT: delivered at terminal – NEW
- DAP: delivered at place – NEW
- DDP: delivered duty paid
Incoterms 2010 only applicable for sea and inland waterway transport:
- FAS: free alongside ship
- FOB: free on board
- CFR: cost and freight
- CIF: cost, insurance and freight
Incoterms pretty much define the rules of the road for international transactions. And while you may never need to know the specifics, it’s good to have a general understanding of what Incoterms are, and the role they play in the global supply chain. (And it’s also not a bad idea to make sure that your logistics provider has a thorough understanding!)