What are Incoterms?       

INCOTERMS（International Commercial Terms）are formulated by the International Chamber of Commerce(ICC) for domestic and international commercial matters. Incoterms are all the possible ways of distributing responsibilities and obligations between two parties. It is essential for buyer and seller to pre-define the duties and obligations for the transport of the goods.

How do Incoterms^® protect sellers and buyers?

For Buyers:

●It is conducive to the negotiation of contracts between buyer and seller, simplifying the content of transactions;

●All expenses are clearly defined, which is conducive to the price and cost calculation of the buyer and seller;

●It is helpful to the settlement of disputes between buyer and seller ;

For Sellers:

●Explain the trade agreements between seller and customer, including shipping methods, cost-bearers, division of trade risks, and belongings of the responsibilities ;

●Help sellers to identify the needs of the customer and recommend suitable products and services for customers.

Top 11 Incoterms^® should know for eCommerce business in 2021

We shall know which 11 INCOTERMS are available.

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Those terms divide into 4 groups:

• C group (CIF、CIP、CFR、CPT)：The seller arranges and pays the freight to the designated location, which specifies the goods’ destination.
• D group (DAT、DDP、DAP)：The seller arranges and pays the freight to the designated location, which specifies the destination and place of delivery of the goods.
• F group (FOB、FAS、FCA)：The buyer pays freight and arranges for transportation.
• E group (EXW)：Delivered to the buyer at the seller’s factory.

There are 11 Incoterms^®, but below are the terms which frequently use: EXW、FOB、FCA、CIF、DDP、DAP.

• EXW (Ex Works): It means that buyer is responsible for door-to-door delivery for imports he wants. The seller’s responsibility ends upon the manufacturing of the goods. It requires the buyer to clear the goods for export, and the buyer bears the most significant risks, obligations, and costs.
• FOB (Free on Board): The seller’s responsibility ends upon delivering the goods to the seaport as previously agreed upon with the buyer. Hence the seller takes care of the inland transport till discharge port and export customs clearance. The buyer bears all costs and risks after the delivery of the goods.
• FCA (Free Carrier): The seller delivers the goods to the warehouse of the carrier designated by the buyer. The buyer bears all costs and risks after the delivery of the goods.
• CIF (Shipping Cost, Insurance, and Freight): The seller is responsible for the factory’s goods till the destination port as agreed upon with the buyer. Sellers must pay the cost, insurance, and freight required to transport the goods to the named port of destination, but after the goods are delivered to the ship, all risks of the goods are borne by the buyer.
• DAP (Delivered at Place): It means that the seller delivers when the goods are placed at the buyer’s disposal on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the designated location.
• DDP (delivery duty paid): This is used when the seller is responsible for delivering goods at the buyer’s site (somewhat equivalent to home delivery). The entire risk of loss and obligation is with the seller.

How to prepare your eCommerce business for Inconterms^® 2020

When you fulfill your eCommerce orders, do you need the top 11 Incoterms^®?

The answer is “No.”

Below scenarios will help you better understand

Dropshipping:

DDP or DAP

It depends on the shipping method and product value. If the dropshippers ship by ePacket or other postal services, the destination duty and tax are generally free. If the dropshippers ship commercial express companies like FedEx, Ups, and DHL, there may be destination tax and duty.

During this scenario, the dropshippers are responsible for the item when your customers are well received.

Aliexpress

DDP or DAP

In the same situation as dropshipping, the sellers in Aliexpress are responsible for your online order shipped securely.

The fulfillment center in China

Here are the suppliers, fulfillment centers, logistics companies, and eCommerce sellers involved.

DAP – Inventory from the factory to the fulfillment center

During this transit, the supplier is responsible for inventory safety. When received by the fulfillment, the fulfillment center is reliable inventory safety storage.

DDP or DAP – after the eCommerce order fulfills, the fulfillment center handles parcels to logistics companies. The logistics companies are responsible for the safe delivery of your products to the end customers.

Amazon fulfillment center FBA

The suppliers, logistic companies, Amazon fulfillment center, and last-mile delivery companies

EXW or FOB – products from the suppliers to port or terminal.

EXW – Product cost excludes shipping cost from the supplier to port or terminal

FOB – Product cost includes the shipping cost from suppliers to port or terminal

DAP – Products from export destination to Amazon fulfillment enter

The logistics companies are responsible for safe delivery.

DDP – Last-mile delivery companies deliver your orders.

Understanding and grasping different Incoterms^® meanings helps us understand the work scope and confirm the cost to serve our customers better.

If you want to get more information about Incoterms, please check

(Incoterms^® rules – ICC – International Chamber of Commerce)