What does Incoterms mean? Can anyone explain each one of them in layman’s terms? Much appreciated.

Question

Would like to know what incoterms are and when each of them are used and why. Thanks in advance

In: 0

Answer 1

When a company wants to buy something from another company, they need to decide how to handle that. Someone needs to arrange for the item to leave where the seller is storing it, and get to where the buyer wants it.

Somewhere along that route, the seller’s legal liability ends. That might be when the product is delivered, or it might be as soon as it’s picked up, or it might be somewhere along the way, like when it’s loaded onto a ship.

A bunch of corporations got together to make an International Chamber of Commerce. This ICC assigned a set of acronyms to all of the common ways to handle this. So, for example, if the seller is responsible for the cargo up until it reaches the harbor, that’s an FAS code (free alongside ship). If the seller is also taking on the responsibility of having the cargo loaded onto a ship the buyer paid for, that’s an FOB (free on board). If the seller had to pay for the shipping fee, that’s CFR.

There’s a big list of them, but the idea is just to narrow down extremely specific handoff points and methods into a shorthand list, so you don’t need to write a paragraph for each shipment. The dock manager can just read ‘FOB’ and know that if there’s a problem with the loading, they call the seller, not the buyer.

Answer 2

When a company wants to buy something from another company, they need to decide how to handle that. Someone needs to arrange for the item to leave where the seller is storing it, and get to where the buyer wants it.

Somewhere along that route, the seller’s legal liability ends. That might be when the product is delivered, or it might be as soon as it’s picked up, or it might be somewhere along the way, like when it’s loaded onto a ship.

A bunch of corporations got together to make an International Chamber of Commerce. This ICC assigned a set of acronyms to all of the common ways to handle this. So, for example, if the seller is responsible for the cargo up until it reaches the harbor, that’s an FAS code (free alongside ship). If the seller is also taking on the responsibility of having the cargo loaded onto a ship the buyer paid for, that’s an FOB (free on board). If the seller had to pay for the shipping fee, that’s CFR.

There’s a big list of them, but the idea is just to narrow down extremely specific handoff points and methods into a shorthand list, so you don’t need to write a paragraph for each shipment. The dock manager can just read ‘FOB’ and know that if there’s a problem with the loading, they call the seller, not the buyer.