The use of incoterms in an international sales transaction is not imperative, but it facilitates and determines very well the role of each of the parties in it.
Incoterms are the terms in which an international trade operation is carried out. They represent a series of rules in relation to the obligations, costs and risks assumed by the seller and the buyer. The use of incoterms in an international sales transaction is not imperative, but it facilitates and determines very well the role of each of the parties in it.
Security in the logistics chain, the preference to hire the main transport and reduce risks, assume costs or even the level of trust between importer and exporter will be some of the factors that determine the choice of a specific Incoterm.
According to data from Data Comex of Spanish exports from 2010 to 2019, at least 40% of the incoterms are misused. In this article we will talk about some of the most used incoterms and about their correct uses:
Also called “in the factory”. It is the most favorable incoterm for the seller and one of the most used. In this case, the exporter's responsibility ends just before the merchandise is loaded, and the seller's factory is not necessarily the designated place of delivery. The use of this incoterm is recommended for small exporters or those who does not have sufficient experience in international trade, and it is even recommended for national trade. In this way, we are faced with the minimum obligation of the exporter and with a broader control of the logistics chain by the importer, being advantageous for him as well.
In an EXW operation, the costs and obligations of the exporter are reduced to packaging, verification and quality control, but without loading the merchandise. That is why EXW is overused in operations that should be carried out under another incoterm and we find frequent situations such as:
To avoid errors such as the two previously explained, it is recommended to use another incoterm such as the FCA, which we will explain below. As a positive point, more and more exporters are encouraged to operate under other conditions, exporting more actively and assuming more responsibilities, such as delivering to a place closer to the port of departure.
Free Carrier (FCA): also called “free carrier”. It is a versatile incoterm whose use is becoming more and more widespread among exporters. Mainly, the only big difference with the EXW incoterm is that under FCA conditions the seller must carry out the export clearance. However, Free Carrier is practically equal in terms of documentary obligations to Ex Works, but taking fewer risks. These are some of its advantages:
Free On Board (FOB): Also known as “free on board”. It is one of the most used incoterms in maritime transport, since it allows the exporter greater control of the supply chain process, being unfavorable for those exporters with little experience. From this Incoterm we highlight the following:
There are general recommendations and details to take into account when using incoterms, such as: