In the complex world of global trade, there is much to consider and decide upon! Before choosing your logistics partner(s), buyers and sellers must first agree on the terms of trade pertaining to both the movement and the transfer of ownership of purchased goods. Incoterms® are a globally recognized set of rules designed to help bring order to this multifaceted process.
In all, Incoterms® include a set of 11 trade terms. However, in North America, including the USA, Canada and Mexico, the five following Incoterms® are leveraged by the majority of transactions:
FOB - Free on Board (in USA or Canada): The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment.
EXW - Ex-Works (in USA or Canada): The buyer receives the cargo directly from the factory and thereafter arranges shipment, insurance and other related services.
FCA - Free Carrier (in USA or Canada): The seller delivers the goods to a carrier or another person nominated by the buyer at the seller's premises or another named place.
DDP - Delivered Duty Paid (in USA or Canada): The seller bears all the costs and risks involved in bringing the goods to the place of destination and must clear the goods
CIF - Cost Insurance & Freight (in USA or Canada): The seller delivers the goods, cleared for export, onboard the vessel at the pot of the shipment.
These terms alone are not law, but the commercial contracts in which they are used can be legally binding as they describe the obligations, costs, and transfer of risk between parties.
The Incoterms® Responsibility Matrix
The Incoterms® Responsibility Matrix below reflects the spectrum of responsibility and control that moves from "Ex-Works" terms on the left of the table, where the majority of responsibility for arranging services falls to the importer/buyer, all the way over to DDP "Delivered Duty Paid" terms on the right side of the table, where the majority of the responsibility falls to the exporter/seller.
Download Incoterms® MatrixWhich Incoterms® is best for my business in the USA and Canada?
The question shippers need to ask themselves is under what circumstances would they want full control of a particular aspect of a transaction, and when might it make more sense to cede control to another party? Which Incoterm® is best for your business depends entirely upon your overall business team's profile, sophistication, and capabilities to manage the complexities of any given transaction.
Take a look at the Pros and Cons below for when control and responsibility of the various services might be in your best interest as a buyer for each of the four groupings listed.
Want more insights on Incoterms®?
Your logistics partners at Twill can help you decide which Incoterms® make the most sense for your trading needs. That's why we have prepared an eBook to learn more about Incoterms®. Get to know more and download the free eBook today.
Incoterms® and the Incoterms® 2020 logo are trademarks of ICC. Use of these trademarks does not imply an association with, approval of or sponsorship by ICC unless specifically stated above. The Incoterms® Rules are protected by copyright owned by ICC. Further information on the Incoterms® Rules may be obtained from the ICC website.
