Understanding Incoterms 2020: Which Term is Best for Exports?
Incoterms (International Commercial Terms) are the “rules of the game” in global trade. They answer two critical questions: Who pays for the freight and insurance? And exactly where does the risk transfer from seller to buyer?
The Most Common Terms for Exporters:
At Edrisco Holding, we select different terms based on the nature of the cargo (oil, minerals, or dried fruits). Here are the most frequently used ones:
- FOB (Free on Board): The seller is responsible for placing the goods on board the vessel at the port of origin. After that, the risk transfers to the buyer.
- Best for: Exporters who want to offload the risks of international sea freight to the buyer.
- CIF (Cost, Insurance & Freight): The seller covers freight and insurance costs up to the destination port, but the risk transfers immediately once the goods are loaded at the origin.
- Best for: Creating a competitive edge. Buyers prefer “landed” costs, making your offer more attractive.
- EXW (Ex Works): The buyer picks up the goods at your factory gate. The seller has minimal responsibility.
- Best for: Local transactions or clients with their own robust logistics teams.
Which Term is Best for Exports?
Short answer: There is no “best” term, only the “right” one for your strategy.
- If you are a new exporter: FOB is often the safest bet. It limits your liability to your home country’s port.
- If you are an experienced exporter: CIF is recommended. By managing the logistics yourself, you gain control over the supply chain and can potentially increase your margins through negotiated freight rates.
The Edrisco Perspective: Always calculate hidden costs (demurrage, unloading fees at destination) with your logistics team before finalizing the term. An incorrect choice in Incoterms can easily turn a profitable deal into a loss.
