Incoterms - A Vital Element in Successful Exporting

Incoterms are more than just terminology. By using them strategically, an exporter can win new business, do existing business better and increase profits.

Incoterms. We all know what they are, but very few of us ever use them to their full advantage. First introduced more than eighty years ago, when modes of transport and trade were very different, a lot of buyers and sellers are guilty of using Incoterms as if they were cast in stone. (They aren’t, by the way, as a matter of fact the eighth version is due to be introduced in less than two years.)

 Incoterms were introduced by the International Chambers of Commerce in 1936, with the aim of creating a standard agreement on the most important issues in international movement of goods. By producing internationally recognised abbreviations, buyers and sellers could easily reach an agreement that was readily understood about key issues such as who pays for freight, insurance etc., who is responsible for documentation and the point at which risk passes from buyer to seller. As well as giving legal clarity, it could help buyer and seller to overcome language barriers.

But far from being just a convenient form of shorthand, Incoterms should be seen by all as a means of ensuring the goods are delivered as efficiently as possible, to the mutual advantage of buyer and seller.

Most exporters know that the use of an Incoterm is helpful, usually  essential, when producing a price list, quotation or tender. Without it, the price information is not really accurate and is open to interpretation. To have legally agreed meaning, the three letter abbreviation should be used in conjunction with a named place as well as the version of Incoterms that’s being used. So a shipment of goods that the exporter is arranging to deliver to a customer’s carrier at Manchester Airport might use the following definition:

FCA Manchester Airport UK (Incoterms 2010)

In most cases, this might be all the exporter needs, as most customers might be completely happy with this arrangement. It means that the buyer arranges the main carriage (the international movement from Manchester Airport to their country) and is responsible for arranging the main carriage and the clearance of the goods through customs at the point of entry.

But what if this doesn’t suit the buyer? A good salesman always seeks to understand the customer’s needs, advise them on what’s available, and tailor the offer to their requirements. But all too often, this seems to break down when it comes to Incoterms. This is often because the seller sees Incoterms as a boring piece of legal jargon that gets in the way of their real job. This is a mistake, because the agreement of shipping terms and associated arrangements is a sales opportunity in its own right, and just as importantly, can impact on the customer’s satisfaction with the overall service.

From a sales perspective, it makes sense to use a specific Incoterm with any type of quote. In fact, the figures are virtually meaningless without it. A customer-oriented exporter will select the term that they think is most appropriate to the customer or target. For example, if the customer is a regular international buyer, they may have arrangements with international carriers, perhaps even seeking to consolidate your supply with other products and arrange the main shipment together. In this case, the Incoterms beginning with F, where the exporter doesn’t arrange the freight, may be the most helpful. On the other hand, a busy exporter with a lot of shipments who is selling to an end user or a small business that doesn’t usually get involved in shipping might be better using a term beginning with D or C.

But most importantly, the exporter should be prepared to be flexible. Just as in all other aspects of the sale, he should listen to the customer’s needs and tailor the offer around them. This is why it’s just as important for the sales team to understand Incoterms, what each term involves (and doesn’t) and how to arrive at an alternative proposal. This is particularly true where the customer has little experience of international trade, as it allows the exporter to take the uncertainty out of the transaction.

Seasoned users of Incoterms should take note that a revision of the 2010 Incoterms is imminent. Initial reports suggest that the 2020 revision may include at least one brand new term, as well as some substantial changes to meaning in some existing terms. Successful international traders should always aim to stay ahead of the game. Keep watching our website for more information.

Article written by Tim Hiscock - Export Development & International Trade Advisor at Strong & Herd LLP

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