Incoterms 2020 - TBS open teaching

Summary

Samy Obeid's video script delves into the intricacies of international business, highlighting the importance of understanding Incoterms, which are standardized by the ICC to clarify responsibilities and costs in transactions. The script humorously guides viewers through various Incoterms, from the minimal EXW to the comprehensive DDP, illustrating how each term affects the costs, risks, and logistics of shipping goods across borders. It emphasizes the need for clarity to avoid surprises and the significance of these terms in pricing and service agreements in global trade.

Takeaways

• 🌐 Incoterms are standardized international rules defined by the International Chamber of Commerce (ICC) to facilitate global trade by clarifying the responsibilities and costs between business partners.
• 📚 The latest update of Incoterms is the 2020 version, which replaced the 2010 version, reflecting changes in global trade practices.
• 🚚 EXW (Ex Works) is the least expensive Incoterm for the seller, as it requires the buyer to arrange and pay for the transportation from the seller's premises.
• 🚢 FAS (Free Alongside Ship) is an Incoterm where the seller bears the costs and risks of delivering goods alongside the ship at the port of export.
• 📦 FOB (Free on Board) is a common Incoterm where the seller covers the costs and risks of loading the goods onto the vessel, after which the buyer assumes responsibility.
• 🚢 CFR (Cost and Freight) requires the seller to pay for the goods to be transported to the port of destination, but the buyer assumes the risk of loss or damage during transit.
• 🔒 CIF (Cost, Insurance, and Freight) is similar to CFR but includes the cost of insurance, transferring the risk to the buyer once the goods are on board the ship.
• 🏭 DAP (Delivered at Place) is an Incoterm where the seller delivers the goods to a specified location, ready for unloading, but the buyer is responsible for import duties and taxes.
• 🏠 DDP (Delivery Duty Paid) is the most expensive Incoterm for the seller, as it includes all costs and risks until the goods are delivered to the buyer's door, including import duties and taxes.
• 📈 Understanding and correctly applying Incoterms is crucial for international businesses to avoid misunderstandings and additional costs that can arise from unclear agreements on responsibilities and expenses.

Q & A

What are Incoterms and who sets them?

Incoterms, short for International Commercial Terms, are rules set by the International Chamber of Commerce (ICC) to clarify responsibilities and costs between international business partners.

Why are Incoterms important in international business?

Incoterms are important because they help to avoid conflicts between international business partners by clearly defining who is responsible for what and who pays for what during the international transfer of goods.

How often does the ICC update Incoterms?

The ICC updates Incoterms periodically, with the latest version being Incoterms 2020, following the previous version Incoterms 2010, indicating updates roughly every 10 years.

What does EXW (Ex Works) mean and why is it the lowest cost Incoterm?

EXW (Ex Works) means that the seller delivers the goods to the buyer's nominated carrier at the seller's premises. It is the lowest cost Incoterm because the seller bears the least responsibility and cost, essentially just loading the goods onto the truck.

What is the difference between FAS and FOB in terms of the seller's responsibility?

FAS (Free Alongside Ship) requires the seller to deliver the goods alongside the ship at the port of shipment, while FOB (Free on Board) requires the seller to load the goods onto the ship and clear them through export customs.

What does CFR (Cost and Freight) entail for the seller?

CFR (Cost and Freight) requires the seller to pay the costs and freight necessary to bring the goods to the port of destination, but the risk of loss of or damage to the goods passes to the buyer once the goods have been loaded onto the ship.

Why is CIF (Cost, Insurance, and Freight) a more comprehensive Incoterm than CFR?

CIF (Cost, Insurance, and Freight) is more comprehensive than CFR because, in addition to the seller's responsibilities in CFR, the seller also has to procure and pay for the insurance for the goods during the carriage.

What is the significance of the risk passing to the buyer once the goods are on the ship in CIF?

In CIF, the risk of loss or damage to the goods passes to the buyer once the goods are on the ship, which means that even if the goods are lost or damaged during the voyage, the buyer is still obligated to pay the seller.

What does DAP (Delivered at Place) mean and how does it differ from DDP?

DAP (Delivered at Place) means the seller delivers the goods to the buyer at a named place, ready for unloading from the arriving means of transport, but the buyer bears all costs and risks involved in bringing the goods to the destination. DDP (Delivery Duty Paid), on the other hand, includes all the seller's responsibilities up to and including paying the import duties and taxes.

What is the change from DAT to DPU in Incoterms 2020?

In Incoterms 2020, DAT (Delivered at Terminal) is replaced by DPU (Delivered at Place Unloaded) to more accurately reflect that the seller is responsible for unloading the goods at the destination, not just delivering them to a terminal.

How do Incoterms affect the price of goods in international transactions?

The price of goods in international transactions is affected by the Incoterms chosen because different Incoterms place different responsibilities and costs on the seller. For example, DDP, which requires the seller to bear all costs and risks until the goods are delivered to the buyer's door, will result in a higher price for the buyer than EXW.