What is Incoterms ? Most used Incoterms in Bangladesh
In the realm of global commerce, successful transactions rely heavily on clear communication and well-defined terms. This is where Incoterms come into play. Incoterms, short for International Commercial Terms, are a set of standardized rules developed by the International Chamber of Commerce (ICC) to define the responsibilities of buyers and sellers in international trade transactions. They serve as a common language for businesses across different countries, facilitating smoother transactions and reducing misunderstandings.
📜 The Evolution of Incoterms 🔄
Incoterms have a rich history that spans several decades. The ICC first introduced them in 1936 to establish uniformity in international trade practices. Since then, Incoterms have undergone several revisions to adapt to the changing landscape of global commerce. The most recent version, Incoterms 2020, replaced the previous 2010 edition, incorporating updated rules and clarifications to address modern trade practices and challenges.
📚 Decoding Incoterms 🧩
Incoterms are divided into different categories, each denoted by a three-letter abbreviation. Let’s explore some of the commonly most used Incoterms:
1️⃣ Ex Works (EXW): Under this term, the seller’s responsibility ends when they make the goods available at their premises. The buyer bears all costs and risks associated with transportation.Specially it is used for spare parts or machinery items.
2️⃣ Free Carrier (FCA): The seller is responsible for delivering the goods to a carrier or another party nominated by the buyer. The risk transfers to the buyer at that point.
3️⃣ Cost and Freight (CFR): The seller covers the costs of transportation to the destination port, while the buyer assumes the risk and costs beyond that point.
4️⃣ Free on Board (FOB): Similar to CFR, the seller is responsible for transporting the goods to the port of shipment. However, the risk transfers to the buyer when the goods are loaded onto the vessel.This terms helps to distinguish the freight charge for raw materials.
5️⃣ Delivered Duty Paid (DDP): The seller takes full responsibility for delivering the goods to the buyer’s location, including customs duties and taxes.
These are just a few examples of the 11 Incoterms defined in the Incoterms 2020. Each term specifies the obligations of the buyer and the seller regarding transportation, insurance, customs clearance, and transfer of risk.In Bangladesh, EXW,FOB,CFR, DDP are commonly used.
🌟 Why Incoterms Matter ✨
In the complex world of international trade, Incoterms offer numerous benefits:
1️⃣ Clarity and Consistency: Incoterms establish a common understanding among buyers, sellers, and intermediaries involved in international transactions. By clearly defining the obligations of each party, they minimize confusion and potential disputes.
2️⃣ Risk Allocation: Incoterms help determine when the risk transfers from the seller to the buyer, ensuring both parties have a clear understanding of their responsibilities and liabilities at each stage of the transaction.
3️⃣ Cost Management: By specifying which party is responsible for certain costs (such as transportation, insurance, or customs duties), Incoterms enable accurate cost estimation and effective budgeting.
4️⃣ Global Standardization: Incoterms provide a universal framework that transcends national boundaries and legal systems. This promotes smoother international trade, reduces trade barriers, and fosters trust between parties from different countries.
🌐 As a Foreign procurement specialist or a buyer, these terms are necessary to communicate with supplier/seller from foreign countries. We can minimize the cost as well as risk of exporting or importing items.
