Explained about basic INCOTERMS for beginners! EXW/FOB/CFR/CIF/DAP/DDP.

Summary

This video, presented by HPS Trade, a Japanese freight forwarder in Thailand, offers an insightful overview of Incoterms, essential trade terms and conditions that dictate who bears the freight costs and responsibility for cargo during delivery. Focusing on six commonly used Incoterms—EXW, FOB, CFR, CIF, DAP, and DDP—the presenter explains each term's implications for freight costs, insurance, and cargo responsibility, emphasizing the importance of understanding these terms for smooth international trade and the mutual agreement between sellers and buyers. The video also highlights the necessity of cargo insurance in international logistics and provides a clear guide for logistics professionals to make informed decisions.

Takeaways

• 📚 Incoterms are international trade terms and conditions that define responsibilities between buyers and sellers for the delivery of goods.
• 🔢 There are 11 different Incoterms, but the focus should be on understanding the six most commonly used ones: EXW, FOB, CFR, CIF, DAP, and DDP.
• 🚚 EXW (Ex Works) is the simplest term for sellers, where buyers are responsible for all transportation costs and risks from the seller's factory.
• 🚢 FOB (Free On Board) transfers the responsibility of goods from the seller to the buyer once the goods are loaded onto the ship.
• 💸 CFR (Cost and Freight) requires sellers to pay all transportation costs and freight to the port of import, after which importers pay local costs.
• 🛫 CIF (Cost, Insurance, and Freight) is similar to CFR but includes insurance arranged by the seller for the cargo during transit.
• 🚪 DAP (Delivered At Place) is a 'door-to-door' term where the seller pays all costs and bears responsibility until the goods reach a specified location.
• 🏦 DDP (Delivered Duty Paid) is similar to DAP, but the seller also pays for import customs duties and taxes, making it a complete 'door-to-door' service.
• ⚠️ It's crucial for both buyers and sellers to understand and agree on the Incoterms to avoid disputes and ensure smooth international trade.
• 🌐 Incoterms help establish clear rules for cargo delivery, payment, and risk allocation, which are essential for international logistics.
• 💼 Understanding Incoterms is vital for professionals in manufacturing, trading, and forwarding companies to make informed decisions and provide the best service to customers.

Q & A

What is the purpose of INCOTERMS in international trade?

INCOTERMS are trade terms and conditions that clearly define who pays the freight and who is responsible for the cargo at different steps of the cargo delivery process between sellers and buyers.

How many types of INCOTERMS are there in total?

There are 11 types of INCOTERMS in total.

Why is it important to understand the basic six INCOTERMS as a beginner?

As a beginner, focusing on the six most commonly used INCOTERMS helps in building a strong foundation before moving on to the rest, making it easier to understand and remember the more complex terms.

What are the six basic INCOTERMS that are frequently used in trade business?

The six basic INCOTERMS are EX WORKS (EXW), FOB, CFR, CIF, DAP, and DDP.

What does EX WORKS (EXW) mean for the seller in terms of responsibility and cost?

In EX WORKS, the seller's responsibility ends once the cargo is loaded onto the buyer's transportation at the factory. The buyer is responsible for all transportation costs and risks from that point.

How does the responsibility of cargo change under FOB terms?

Under FOB terms, the responsibility for the cargo shifts from the seller to the buyer once the cargo is loaded onto the ship at the port of export.

What does CFR stand for and who pays the freight costs under this term?

CFR stands for Cost and Freight. The seller pays all freight costs from the factory to the port of import, while the importer pays for costs such as shipping fees and transportation from the port to the final delivery location.

What is the main difference between CFR and CIF?

The main difference between CFR and CIF is that CIF includes insurance ('I' stands for Insurance), meaning the seller has to arrange insurance for the cargo delivery in addition to paying all freight costs from the factory to the port of import.

What is DAP and how does it differ from DDP in terms of responsibility and cost?

DAP (Delivered At Place) means the seller pays all costs and takes all responsibility for the cargo until it is delivered to a specific place. The main difference from DDP is that in DAP, import taxes are paid by the importer, whereas in DDP, the seller pays both the import taxes and all transportation costs including taxes.

Why is cargo insurance recommended in international logistics?

Cargo insurance is recommended because it provides security against unforeseen events such as accidents, fires, or damage during the long voyage. Without insurance, there is no guarantee for the cargo, which can lead to significant financial loss.

How should one approach learning and applying INCOTERMS in their logistics job?

One should start by understanding the basic six INCOTERMS and then gradually learn the rest. It's also important to consider which terms are advantageous for one's own logistics and to make informed suggestions to customers based on a clear understanding of the terms and conditions.