07 Feb Incoterms for Amazon & eCommerce Sellers
Incoterms, also known as trade terms, constitute the essential elements of international contracts of sale and are widely used in trade and commerce. Incoterms 2020 are valid from 1st January 2020, and they clarify the parties engaged in trade deals regarding what to do for 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, short for “international commercial terms,” is used to make international trade more manageable by helping traders in different countries understand one another. Incoterms were first developed in 1936 and are updated every ten 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 has been in effect since 1st January 2020. Incoterms are known and implemented by all major trading nations.
Incoterms are only part of the entire export contract, and they don’t say anything about the price to be paid or the method of payment used in the transaction. Whether you are sourcing locally or importing products from any other country, As a seller, you need to have a good understanding of terms and jargon used in international trade. With that, we move on to the terms included as part of Incoterms 2020.
1. EXW ( Ex-Works )
The supplier will only manufacture the product and hand it to the buyer at the seller’s factory/warehouse. The buyer bears all risks and costs starting when it picks up the products at the seller’s location.
2. FCA ( Free Carrier )
The seller manufactures the product and is responsible for delivering the product to a warehouse or place nominated by the buyer within the 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. Suppose the seller and buyer had agreed to use a credit letter as the payment method for this transaction. In that case, banks often require the seller to present a BOL with an onboard notation before they can get paid. An international carrier won’t typically provide a seller who did not deliver 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 onboard notation to the seller.
3. CPT ( Carriage Paid To )
The 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. The contract under this term does not include any insurance.
4. CIP ( Carriage And Insurance Paid To )
“Carriage and Insurance Paid to” is similar to CPT, but now insurance is also included and is the responsibility of the seller; furthermore, as per Incoterms 2020 rules for CIP, the seller is directly responsible for purchasing a higher level of insurance coverage—at least 110% of the value of the goods.
5. DAP ( Delivered At Place )
The seller delivers at the place/warehouse within the buyer’s country, but customs duty and import clearance are the buyer’s responsibility.
6. DPU ( Delivered At Place Unloaded )
The seller is responsible for the delivery of goods at the agreed-upon place. Use this term for any mode of transportation. Import, Customs is the responsibility of the buyer.
7. DDP ( Delivered Duty Paid )
The seller delivers the shipment to the buyer’s warehouse with all duties already paid. The buyer is only responsible for unloading and storing the cargo within his warehouse.
8. FAS ( Free Alongside Ship ) [For Sea & Inland Waterway Freight]
The seller clears the goods for export and delivers them 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]
FOB indicates the placement of cargo on board the ship by the seller at a port within the seller’s country. After getting the cargo loaded, the responsibility transfers over to the buyer.
10. CFR ( Cost and Freight ) [For Sea & Inland Waterway Freight]
“Cost and Freight” mean that the seller is also responsible for freight charges till the goods arrive at the port of the buyer’s country; however, the risk is transferred to the buyer once the shipment is loaded onto the ship.
11. CIF ( Cost, Insurance, and Freight ) [For Sea & Inland Waterway Freight]
CIP is like CFR; however, insurance is now part of the contract, but under these terms, the risk still transfers to the buyer when the shipment is on board.
Well, now you know your Incoterms! What is your plan for building a passive income stream through selling on Amazon? Selling on Amazon is easy and profitable. Sign up for a free informational email campaign through the form below to learn more about selling on Amazon, or if you are an existing seller, check out our Amazon Account Management Services to turbo charge your sales.