With increasing numbers of entrepreneurs opening online shops and getting involved in cross-border shipping, having a good knowledge of Incoterms is now more important than ever before.

What are Incoterms? And why are they important?

Incoterms are trade terms – established by the International Chamber of Commerce (ICC) – that define who pays what in the shipping of goods.

Incoterms are 100% negotiable with your partner and allow you to control a wide variety of aspects relating to the shipping of goods: ranging from the mode of transport to the levels of cover provided.

You may not realise it, but you use Incoterms every time you buy something from another county. When you buy something on Amazon or Alibaba from outside Singapore, goods are shipped under DAF terms: Delivered At Frontier. Under this arrangement, the courier delivers your items and collects General Sales Tax (GST), if applicable.

• When buying from Lazada or Shopee domestically, products are sent under CIF terms: Cost, Freight & Insurance. Under these terms, Lazada and Shopee cover all shipping costs. However, there are conditions attached:
• The seller is unwilling to negotiate the terms of their sales;
• You cannot go to the warehouse and pick up your items;
• Nor can you send a Grab to pick up your items on your behalf;
• Ultimately, the seller is responsible for your items arriving to your front door, since they are paying the delivery fees themselves.

As Incoterms are intended for use both domestically and internationally, there may be additional complications, such as port fees, terminal charges, customs clearance fees, pirates (no, really!), etc. that can add unexpected costs to your shipment.

Risks

Incoterms are a legal means of explicitly stating who bears the responsibility for risk of damage, loss, or unexpected charges during transit. Obviously, sellers or suppliers working on Ex-Works terms have few, if any, risks in this regard. Some sellers prefer to work only domestically in order to avoid risks that come with international shipping. Others, like DHL or Fedex, provide door-to-door optimal customer service, with the recipient responsible for paying any duties.

For bigger and long-term contracts, Incoterms are a negotiable term of sale that reflect your appetite for risk, whether you are buyer or seller.

But in any case, whichever expert you engage, be prepared that it might take you a few attempts before you find your optimal shipping solution. Nevertheless, with increased experience, the world of logistics, which appears daunting at first, soon becomes readily understandable, enabling you and your firm to take full advantage of any business opportunity that arises – be it local, regional or global.