What Are Incoterms and How Do They Impact Your Trucking Business?
Commercial drivers need to be aware of Incoterms, the international terms of sale that impact their business. There are 11 terms in total which dictate how goods are exported and imported and can greatly impact your bottom line. However, not all of these terms apply directly to over the road trucking. Understanding Incoterms is crucial for ensuring that you’re operating your trucking business in a way that’s fair to both you and your customers. You may also see terms such as Incoterms 2010 and Incoterms 2020. This is because they were updated as of January 1, 2020. You will still see Incoterms 2010 and prior listed in some instances though; all contracts using any of the previous versions remain valid as long as they are agreed upon by all parties involved in the transaction. In these cases they must clearly specify the chosen version of Incoterms being used. Stay up to date on the latest incoterms rules and changes so you can stay ahead of the competition!
Incoterms are a series of international commercial terms developed by the International Chamber of Commerce (ICC). They are commonly used in international commercial transactions and their primary purpose is to clearly define the responsibilities of buyers and sellers for the transport from the seller’s premises and delivery of goods to the final destination. Incoterms are typically used in conjunction with sales contracts and bills of lading. Though Incoterms are not mandatory, their use is strongly encouraged by the ICC as they provide a standardized set of rules that help to minimize the risks and uncertainties associated with international trade. Incoterms can have a significant impact on your trucking business, so it’s important to choose the right one for your shipping needs.
Types of Incoterms
Incoterms are a set of abbreviations for international rules that define the responsibilities of buyers and sellers for the delivery of goods. There are 11 Incoterms in total, divided into two categories being rules for any mode or modes of transport and rules for sea and inland waterway transport.
You will find them divided as follows:
Rules For Any Mode Or Modes Of Transport
EXW | Ex Works
FCA | Free Carrier
CPT | Carriage Paid To
CIP | Carriage and Insurance Paid To
DAP | Delivered at Place
DPU | Delivered at Place Unloaded
DDP | Delivered Duty Paid
Rules For Sea And Inland Waterway Transport
FAS | Free Alongside Ship
FOB | Free On Board
CFR | Cost and Freight
CIF | Cost Insurance and Freight
Out of these 11 Incoterms, the following seven are the 2020 rules that apply to any mode(s) of transport, such as over the road trucking. We will take a closer look at these as they are most applicable to you in the commercial trucking industry.
EXW (Ex Works)
Ex Works is an Incoterm that indicates that the Seller has fulfilled their obligation to the Buyer when they make the goods available at their premises. The Buyer is responsible for all costs and risks associated with picking up the goods, including arranging for commercial trucking. As a result, Ex Works is typically used when the Buyer has their own shipping arrangements or when the goods are already in transit. When using Ex Works, it is important to specify who is responsible for loading the goods onto the truck, as this can often be a contentious issue.
FCA (Free Carrier)
The term “free carrier” means that the seller is responsible for delivering the goods to a designated location, such as a trucking company or shippers terminal. Once the goods have been delivered, the buyer is responsible for all costs and risks associated with the means of transport. This arrangement is often used when buyers and sellers are located in different countries.
CPT (Carriage Paid To)
“Carriage Paid To” is an Incoterm that indicates the seller is responsible for the cost of shipping the goods to their destination, at which point the buyer takes over responsibility. This Incoterm is often used in commercial trucking contracts. In these cases, the seller pays for the cost of loading the goods onto the truck and any other fees associated with getting the shipment to its destination. Once the goods arrive, the buyer is responsible for unloading and any other costs associated with the point of delivery. Carriage Paid To can be used for shipments by land, sea, or air. When using this Incoterm, it’s important to be clear about which mode of transport will be used so that there are no surprises.
CIP (Carriage and Insurance Paid To)
“Carriage and insurance paid to” is an Incoterm that places the responsibility for the transportation and insurance of goods on the seller. This means that the seller must contract a licensed commercial trucking company to transport the goods and arrange for insurance coverage. The buyer is responsible for paying the cost of transportation and insurance.
DAP (Delivery at Place)
The Incoterm “Delivery at Place,” or “DAP,” is used in commercial trucking. International trade terminology known as Incoterms outline the obligations of buyers and sellers in cross-border transactions. DAP indicates clearly that the seller is in charge of delivering the products to a location that has been chosen by the buyer. Any fees or dangers related to transportation after that are the buyer’s responsibility. Although DAP can be used to any method of transportation, trucks are the most typical application. It’s crucial to carefully evaluate every aspect of delivery while utilizing DAP, including lead time, packing, and insurance. DAP can be an effective tool for streamlining the international shipping process with careful planning.
DPU (Delivered at Place Unloaded)
The Incoterm “Delivered at Place Unloaded” (DPU) was formerly known as “Delivered At Terminal” in the Incoterms 2010 edition. It implies that there are no limitations on the delivery location being at the designated port of destination. However, because many transportation hubs are somewhat vast, the location must be provided with precision. Here, the seller is in charge of both organizing transportation and delivering the products, unloaded from the arriving mode of transportation, to the specified location. When the products are unloaded, the risk of the transaction is transferred from the seller to the buyer. The only Incoterm that necessitates the seller unloading the goods in order to complete delivery is this one.
DDP (Delivered Duty Paid)
Delivered Duty Paid (DDP) is another use that can be used for any mode of transport. This rule can even be applied where there is more than one mode of transportation in the process. Here the seller is responsible for arranging carriage and delivering the goods at the named place, cleared for import and all applicable taxes and duties paid. The risk, in this case, transfers from seller to buyer when the goods are made available to the buyer, ready for unloading from the arriving means of transport. This Incoterm rule places the maximum obligation on the seller and is the only rule that requires the seller to take responsibility for matters such as import clearance and payment of taxes and/or import duty.
Advantages of Using Incoterms
Incoterms are a set of international rules that define the responsibilities of buyers and sellers when transporting goods. They are published by the International Chamber of Commerce (ICC) and are used for global trade by businesses around the world to help ensure that shipments are transported safely and efficiently. Incoterms can be used for any type of commodity, but they are particularly important for commercial trucking shipments. When Incoterms are used, they can help to reduce the risk of delays, damaged goods, and other problems. Incoterms can also help to clarify the roles and responsibilities of each party involved in the shipment, which can help to avoid misunderstandings. In addition, Incoterms can provide some protection for businesses in the event of a dispute. For these reasons, Incoterms can be a valuable tool for businesses that engage in international trade.
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