As we explained in our “what are Incoterms® article“, Incoterms® are a standard set of rules developed by the International Chamber of Commerce for the delivery of goods. Incoterms® indicate which party (buyer or seller) to a sales contract bears the risk, costs and responsibilities at any given time during the delivery of goods in a particular international transaction. Given that they indicate which expenses are the seller’s responsibility, there is a direct influence on the price the seller quotes. Furthermore, certain Incoterms® will indicate which party bears the costs and responsibility of procuring marine insurance (cargo insurance), which also impacts the price a seller quotes. This article looks at how Incoterms® fit in when quoting an international buyer.
Incoterms® and Quoting for Exports
As you will recall from our “Incoterms® explained” article, Incoterms® 2020 covers 11 different stages of delivery. The 11 Incoterms® promoted by the ICC range from a point of delivery that carries the minimum cost, risk and responsibility for the exporter to a point of delivery that carries the maximum cost, risk and responsibility for the exporter. When quoting your international buyer, your export quotation should stipulate a series of prices according to a set of progressive Incoterms®. For example, an EXW price, an FOB price, a CFR price and a CIF price. It is also standard practice for the freight and marine insurance premium to be stated separately so that the buyer has an opportunity to determine whether or not they can negotiate more competitive prices from other suppliers. For example, suppose a buyer receives your quotation and determines that they cannot get a better price on freight and insurance. In that case, they may opt for the CIF price stated. Conversely, if a buyer determines that they can get a better price on freight and insurance through other suppliers, they may opt for the FOB price quoted.
Incoterms® and Marine Insurance
According to the Incoterms® 2020 rules, cargo or marine insurance is only required under CIF and CIP. Where the other nine Incoterms® are concerned, it is up to the seller and buyer to decide whether they want to cover their respective risks while cargo is in transit.
Incoterms® play a vital role in international trade, but few exporters and importers know how to use them effectively. In collaboration with the International Trade Institute of Southern Africa, Trade Forward Southern Africa has created a free and comprehensive online training course that provides training on all eleven Incoterms®, including FOB, CIF and DDP. Click the links below to sign up for free and get started.
To sign up to the School of Export CLICK HERE.
If you already have a profile, CLICK HERE to login to begin the module.