Date : 4 October 2018
Lots of people ask us about INCOTERMS and its significance on their Export-Import business. To answer this, we simply ask them to first find-out the basic cost of their goods, which they are going to Export or Import.
Basic cost = Final cost of goods to be sold or purchased at origin site/factory
Example: Basic cost of 01 mango box = INR 500 at farm in Pune, India
Once basis cost is clear, person needs to add cost associated with supply-chain to the basic cost, which is decided as per INCOTERMS. The INCOTERMS are intended primarily to clearly communicate the Tasks, Costs, and Risks associated with the Global or International Transportation and Delivery of the goods.
INCOTERMS rules are accepted by Governments, Legal authorities, and Practitioners worldwide for the interpretation of most commonly used terms in International trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide.
Most commonly used INCOTERMS are:
EXW (Ex Works)- The Exporter makes the goods available at their premises. This term places the maximum obligation on the Buyer and minimum obligations on the Exporter. The Ex Works term is often used while making an initial quotation for the sale of goods without any costs included.
FOB (Free on Board- Origin Port)- Under FOB terms, the Exporter bears all Cost and Risk up to the point the goods are loaded on-board the vessel. The Exporter’s responsibility does not end at this point and same is subject to different Terms & Conditions of the agreement between Exporter and the Buyer.
CIF – Cost, Insurance & Freight (Destination Port)- This term is broadly similar to the above CFR term, with the exception that the Exporter/Seller is required to obtain Insurance for the goods while in transit till the destination port. CIF requires the Exporter/Seller to Insure the goods for 110% of their value.
CONBOX Logistics is an end-to-end supply-chain services partner. We strive to bring-in most advanced solutions & practices into existing supply-chain of our customers, leading to cost-reductions and strengthening-of-operations. For customized solutions & rates, please contact us