If you are shipping goods to international markets, your pricing strategy should include Incoterms. If you pick the wrong incoterm or do not understand the definition, the cost of your mistake could wipe out any profit.
Incoterms are internationally accepted terms that spell out responsibilities for various shipment costs and details. Two examples of incoterms are Delivery Duty Paid (DDP) and Ex Works (EXW). DDP states that it is the seller’s obligation to clear goods in the buyer’s country and pay any taxes. For EXW, the seller will provide goods at a specific location; the buyer is responsible for all other obligations, risks, and costs beyond the specific location. Incoterm regulations are revised as frequently as necessary and are divided into two groups based on the delivery method. The eleven rules consist of seven rules applicable to any mode of transportation and four rules that apply to sea and inland waterway transport.
There is a bounty of resources to better understand incoterms and their definitions. Various websites with the International Trade Administration provide videos and digital tools: Know Your Incoterms (trade.gov) and Navigate Shipping and Logistics (trade.gov). A complete list of incoterms is provided in Incoterms 2020, a booklet issued by the International Chamber of Commerce (ICC). For practical advice and counseling, you can reach out to the Wyoming SBDC Network (wyomingsbdc.org) and the U.S. Commercial Service Denver (Colorado Denver (trade.gov).
Incoterms help buyers and sellers reduce possible misunderstanding in sale and purchase contracts. Learn the tools to help you negotiate these international terms of sale.
Patty Brewer is an Export Finance Manager with the SBA’s Office of International Trade. Her territory includes Colorado, Montana, Utah, and Wyoming. She can be reached at 720-556-4664 or firstname.lastname@example.org.