Incoterms for beginners | Global Trade Explained

Summary

This video tutorial covers Incoterms 2020, the international trade terms that define the obligations and responsibilities between buyers and sellers in shipping goods. It explains the various shipping processes and key Incoterms like EXW, FOB, CFR, CIF, DDP, and DDU. The video focuses on the risks, costs, and responsibilities of both parties involved in international trade, helping viewers understand the critical terms used in contracts and invoices. The video is aimed at those in international trade or aspiring business owners looking to navigate the complexities of shipping goods across borders.

Takeaways

• 😀 Incoterms are international trade terms that define the responsibilities of buyers and sellers in shipping goods across borders.
• 😀 Incoterms 2020 is the latest version and has only minor changes compared to previous versions.
• 😀 The shipping process includes multiple steps: picking up goods, transporting to a port, clearing customs, and delivering to the final destination.
• 😀 Incoterms help determine who bears the costs and risks at each stage of the shipping process.
• 😀 EXW (Ex-Works) means the seller has no delivery obligations, and the buyer is responsible for transportation from the supplier's location.
• 😀 FOB (Free on Board) is commonly used for sea shipping. The seller covers risks and costs up to the loading port, while the buyer takes over from there.
• 😀 CFR (Cost and Freight) and CIF (Cost, Insurance and Freight) are similar, with the seller covering the cost and freight to the destination port, but CIF also requires the seller to provide insurance for the goods during transit.
• 😀 DDP (Delivery Duty Paid) means the seller handles all costs, risks, and import duties up to the final destination, often referred to as door-to-door delivery.
• 😀 DDU (Delivery Duty Unpaid), although outdated, is still used. It means the seller is responsible for everything except import duties and formalities.
• 😀 DAP (Delivered at Place), similar to DDU, indicates the seller takes on all risks and costs until the goods reach the destination, excluding import duties and formalities.
• 😀 Understanding the correct Incoterms is crucial when negotiating product or shipping costs with customers and suppliers.

Q & A

What are Incoterms?

Incoterms, short for International Commercial Terms, are standardized delivery terms used in international trade to define the responsibilities of both the buyer and the seller regarding shipping goods to their final destination.

Which version of Incoterms is being discussed in this tutorial?

The tutorial covers the most recent version of Incoterms, which is Incoterms 2020.

How do Incoterms help buyers and sellers in international trade?

Incoterms help clarify the obligations of both parties (buyer and seller) regarding the costs, risks, and responsibilities associated with transporting goods internationally. This ensures that both parties are on the same page during the transaction.

What is the role of customs in international shipping according to the tutorial?

Goods need to clear customs in both the country of origin and the destination country before they can be transported across borders. Incoterms help define who is responsible for the customs clearance and related costs.

What does EXW (Ex-Works) mean in terms of delivery responsibility?

EXW, or Ex-Works, means that the supplier has no delivery obligation. The buyer is responsible for picking up the goods from the supplier's location and handling all transportation to the final destination, including customs and risks.

What is the difference between FOB (Free on Board) and EXW?

FOB means that the seller is responsible for all costs and risks up until the goods are loaded onto the ship at the agreed port of shipment. In contrast, EXW places the full responsibility for pickup and transportation on the buyer from the supplier's location.

What does CFR (Cost and Freight) mean, and how is it different from CIF (Cost, Insurance, and Freight)?

CFR means that the seller pays for the transportation of goods to the destination port, but the buyer is responsible for risks once the goods are on board the ship. CIF includes the same responsibilities for the seller, but the seller must also provide insurance for the goods during transit.

What is the seller's responsibility under DDP (Delivery Duty Paid)?

Under DDP, the seller is responsible for all risks and costs associated with transporting goods to the final destination, including import formalities and duties. The goods are delivered ready to be unloaded at the specified place of arrival.

How does DDU (Delivery Duty Unpaid) differ from DDP?

DDU, an older term from Incoterms 2000, is similar to DDP, but it does not include the seller's responsibility for import duties and formalities. The seller still handles all other transportation and risks until the goods reach the destination, but the buyer is responsible for customs duties.

Why is DDU still used despite being replaced in Incoterms 2020?

DDU is still commonly used in trade documents, particularly in regions where the term remains popular. Even though it has been replaced by DAP (Delivered at Place) in Incoterms 2020, traders often continue using DDU for clarity, specifying 'as per Incoterms 2000' in their contracts.