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INCOTERMS

Think about this: when you quote any customer, whether domestic or for export, what is included in the price? Are you going to deliver the product to them or are they going to pick it up., Is insurance included? The list can go on and on.

When it comes to export, Incoterms are internationally recognised terms of trade that clearly stipulate the responsibilities of both the buyer and seller. For new exporters, an understanding of Incoterms is critical before quoting a customer. Knowing what your responsibilities are, and therefore the costs that you will incur, is integral in any export transaction. Incoterms will tell you what is, and what isn’t included in the selling price.

Once you have an understanding of Incoterms it is important that you use them correctly. A common mistake for example is to give a customer a Free of Board (FOB) price without an indication of a place. For example, you shouldn’t quote a price $60 FOB. Is it FOB Adelaide or Melbourne? It could be quite a difference in cost for both you and your customer. You should also consider the version of Incoterms. The most recent published were Incoterms (2010), although earlier versions are still valid. Therefore the correct way to use Incoterms would be FOB Adelaide – Incoterms (2010.)

It is important that you refer to Incoterms on all your correspondence with your customer. Whether it is a quote, order acknowledgement, or Commercial Invoice, always include Incoterms.

So what do all these Incoterms mean? Following is a summary of some of the more commonly used Incoterms. Further information on all Incoterms is available from the International Chamber of Commerce .

Ex-Works (EXW): The exporter is responsible to pack the goods for export, and your customer will arrange and pay for pick up from your premises. Risk transfers to your customer when the goods are ready for pick up.

Free on Board (FOB): The exporter is responsible to deliver the goods to the nominated Australian port, and pay all charges associated with loading the goods on the vessel. Risk transfers to your customer when the goods pass the ships rail.

Cost & Freight (CFR): The exporter is responsible to arrange and pay all freight costs to the nominated destination port. Risk transfers to your customer when the goods pass the ships rail at destination.

Cost Insurance & Freight (CIF): Similarly to CFR, the exporter must ship the goods to the nominated destination port, but must also include insurance up to this point. Risk transfers to your customer when the goods pass the ships rail at destination.

Delivered Duty Unpaid (DDU): The exporter is responsible to deliver the goods to the customers nominated warehouse or destination, but is not responsible for any duties in the destination country. Risk transfer to your customer when the goods are delivered to them.

Delivered Duty Paid (DDP): The exporter is responsible to deliver the goods to the customers nominated warehouse or destination, and to pay any duties in the destination country. Risk transfer to your customer when the goods are delivered to them.

The information provided is to be used as a guide only, and without warranty of any kind. We recommend that you contact Export Assist ™
to discuss your individual situation.