07 Feb Incoterms for Amazon & eCommerce Sellers
Incoterms also known as trade terms, constitute the basic elements of international contracts of sale and are widely used in trade and commerce. Incoterms 2020 are valid from 1st January 2020 and they give clarity to the parties engaged in trade deals regarding what to do with respect to carriage of the goods from buyer to seller, and export & import clearance. They also explain the division of costs and risks between the parties.
Incoterms, which is short for “international commercial terms,” are used to make international trade easier by helping traders who are in different countries to understand one another. Incoterms were first developed in 1936 and are updated every 10 years to conform to changing environment and adopt current trade practices. Incoterms are trade terms published by the International Chamber of Commerce (ICC) and right now Incoterms 2020 are in effect since 1st January 2020. Incoterms are known and implemented by all major trading nations.
Incoterms are only part of the whole export contract. They don’t say anything about the price to be paid or the method of payment that is used in the transaction. Whether you are sourcing locally or importing products from any other country, As a seller, you need to have good understanding of terms and jargon used in international trade and with that we move on to the terms included as part of Incoterms 2020.
1. EXW ( Ex-Works )
Seller will only manufacture the product and hand them over to buyer at seller’s factory / warehouse. Buyer bears all risk and costs starting when it picks up the products at the seller’s location.
2. FCA ( Free Carrier )
Seller manufactures the product and is also responsible for delivering the product to a warehouse or place nominated by the buyer within seller’s country. This term has been clarified further in the Incoterms 2020 rules. Earlier, problems arose with this term when the seller was responsible for loading the goods on a truck hired by the buyer and not directly on the international carrier. If the seller and buyer had agreed on using a letter of credit as the payment method for this transaction, banks often require the seller to present a BOL with an on-board notation before they can get paid and an international carrier won’t typically provide a seller who did not present the goods directly to them with such a bill of lading.
Under the new Incoterms 2020 rules, FCA allows the parties to agree in the sales contract that the buyer should instruct its carrier to issue a bill of lading with the on-board notation to the seller.
3. CPT ( Carriage Paid To )
Seller clears the goods for export and delivers them to the carrier or another person stipulated by the seller at a named place of shipment, at which point risk transfers to the buyer. Insurance is not included
4. CIP ( Carriage And Insurance Paid To )
“Carriage and Insurance Paid to” is similar to CPT but now insurance is also included and is responsibility of seller, furthermore as per Incoterms 2020 rules for CIP, the seller is now responsible for purchasing a higher level of insurance coverage—at least 110% of the value of the goods.
5. DAP ( Delivered At Place )
Seller delivers at the place/warehouse within buyer’s country but custom duty and import clearance is responsibility of the buyer.
6. DPU ( Delivered At Place Unloaded )
Seller delivers until unloading of arriving means of transport, bears the risk until agreed place of destination and exports. This term may be used for any mode of transportation. Import, Customs is responsibility of buyer.
7. DDP ( Delivered Duty Paid )
Seller delivers the shipment at buyer’s warehouse with all duties already paid. Buyer is only responsible for unloading the shipment and storing it within his warehouse.
8. FAS ( Free Alongside Ship ) [For Sea & Inland Waterway Freight]
Seller clears the goods for export and delivers them when they are placed alongside the vessel at the named port of shipment. Buyer assumes all risks/costs for goods from this point forward.
9. FOB ( Free On Board ) [For Sea & Inland Waterway Freight]
“Free On Board” indicates that the seller delivers the goods on board the vessel/ship at the port of shipment within seller’s country which is already agreed upon earlier. After getting the shipment loaded, the responsibility transfers over to buyer.
10. CFR ( Cost and Freight ) [For Sea & Inland Waterway Freight]
“Cost and Freight” means that the seller is also responsible for freight charges till the goods arrived at the port of buyer’s country, however risk is transferred to buyer once shipment is loaded onto the ship.
11. CIF ( Cost, Insurance and Freight ) [For Sea & Inland Waterway Freight]
Like CFR however additionally insurance is also included but still risk is transferred to buyer as soon as the shipment is on board.