Which is the best Incoterm? Or, which Incoterms should I use?
These are typical questions that companies ask us when they first approach Incoterms. The answer may look simplistic, but, really, it depends.
Incoterms define the obligations of sellers and buyers in international transactions; they also define at what point in the supply chain the risk shifts from the seller to the buyer.
As you might have grasped from our last sentence, Incoterms are always viewed from the side of the seller.
They start from a situation where the seller’s responsibilities are the least, to one where they are the most.
Therefore, if you are selling internationally, you have to decide what responsibilities you want to include in your quotation, and then choose the right Incoterm.
Before we jump into what Incoterms you should use depending on the services you want to offer, you must know that not all Incoterms can be used in any situation.
Some Incoterms are meant only for waterway transport, or are not intended for containerized cargo.
Here is the list:
Incoterms For Intermodal Transport
Incoterms For Containerized Cargo
As you may have noticed, all Incoterms intended for intermodal transport can be used for containerized cargo.
Now that you know which Incoterms use in what situation, let’s see which one you should consider depending on the risks and responsibilities you are willing to take.
Seller’s Responsibilities: Zero-Hustle Incoterms
If you do not want to incur in any transport obligation or risk of loss of damage to the goods during transportation, you should definitely opt for EXW Ex Works.
Under this Incoterms, the seller must only make the goods available for the buyer for the collection at his own premises.
The problem with the EXW is that it puts all the effort on the buyer, who may not accept it.
A great alternative and one of the most used Incoterms is FCA Free Carrier. The seller must take the goods to an agreed place and to put them at the disposal of the buyer. FCA is an intermodal Incoterm, therefore the agreed place can be a port, an airport, a warehouse: maximum flexibility!
The beautiful thing of using an F-group Incoterm is that, even if the place of delivery is not clear (it should be, but you know how things go sometimes) the seller is sure that this will be at origin, i.e. within his country.
Because of this reason, FAS Free Alongside Ship and FOB Free On Board especially, are widely used Incoterms, most times incorrectly.
You can guess why: both are maritime-only Incoterms, and are not meant for containerized cargo.
Therefore, unless you are shipping an Out of Gauge (OOG) cargo or a batch of grain by sea (see our guide on FOB to understand why) you should always opt for FCA.
Group-C Incoterms: More Services, Same Risk
Suppose that you, as seller, have your own means of transport: a trucks fleet for example. You want to include delivery service in your offer and charge more. Yet, you do not want to incur in additional risk to the goods when transportation occurs in foreign territory.
Well, in that case you should consider the C-group Incoterms:
CIP Carriage & Insurance Paid To
Apart from the fact that CFR and CIF are maritime-only Incoterms not meant for containerized cargo (use CPT and CIP instead), Group-C Incoterms are not easy to deal with: the seller must arrange for transportation up to the place of destination (even the buyer’s premises), but the risk shifts to the buyer at origin.
Because of their hybrid structure, they are extremely common in global shipping, with CIF being perhaps the most used Incoterm in the world.
Yet, they can be confusing, and we suggest you read our guide before you approach any of these Incoterms.
DAP, DPU And DDP: Know What You Are Doing
If you are an e-commerce retailer and sell B2C internationally, you should resort to this group of Incoterms, the D-Group:
DPU Delivered At Place Unloaded
If you want to provide maximum comfort to your client and avoid that he incurs in nasty surprises, you should sell under DDP, as many e-commerce retailers do: the price that your customers sees on your website will include everything, even any taxes upon importation.
In any other case, what we say is: be careful. Under these Incoterms, the seller is responsible for transportation at destination, with all the responsibilities that this may entail: for example, under DPU the seller is responsible even of offloading, whereas under DDP of providing import clearance.
Moreover, the risk shifts to the buyer only when the seller physically delivers the goods to him. Anything that happens to the goods before that moment, does not matter whether it is at origin or destination, is on the seller.
Final Thought: Choose What You Can Do, And Price It
As you can see, there is no best Incoterm in general, but each of them is better suited for a certain situation.
The bottom line is:
- know what you can deliver
- know what risk you can bear
- know what you want to offer
After that, choose the Incoterm that better suits your offer, and price it accordingly.
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