5 Common incoterms mistakes to avoid

1. Incoterms in 2023: 5 Common Incoterms Mistakes to Avoid – Citrus Freight It is critical to avoid certain blunders while utilising Incoterms in international trade to guarantee seamless transactions and minimise risks. Download our Android App – Citrus Freight A few common mistakes to avoid are as follows: Selecting Inappropriate Incoterms: Despite their very distinct requirements, several Incoterms® have identical initials, making them easily confused. For example, CIF and CFR The cost of the products, freight expenses, and insurance coverage arranged by the seller are all included in the CIF price. The cost of the items and freight expenses are included in the CFR, but the customer must arrange and pay for insurance separately. Recognise your own and your partner's obligations. CIF entails the seller securing insurance on the buyer's behalf. These Incoterms® are frequently misinterpreted, resulting in the goods being carried without insurance. Places or destinations must be named specifically: INCOTERMS® are based on a specific location, such as a terminal or port, where risk and responsibility are transferred. To ensure that all parties are clear on culpability in the case of an occurrence, these locations and/or addresses must be expressly named. Terminal Handling Charges: In Incoterms®, the seller is liable for paying terminal handling costs for commodities sent beyond the port of shipment. It is critical to specify who will handle charges in the contract to minimise issues, delays, and unexpected fees.

2. Identifying Customs Tasks and Responsibilities: Although Incoterms indicate who is responsible for export and import procedures, it is critical to understand that proper management of these operations necessitates both the buyer and seller being legally authorised as exporter and importer. In order to ship EXW, the buyer must be familiar with export processes in the seller's nation. Similarly, in the case of DAP shipments, the seller must be able to complete import processes and pay VAT in the buyer's jurisdiction. Ensuring Proper Alignment of Incoterms with Payment Methods: When using a letter of credit or a documentary collection for payment in international trade, it is critical that the Incoterms rule you select fits the security standards or the regulations provided by the banks. If they don't match, it might cause issues and delays with the payment process. As a result, it is critical to correctly coordinate everything to enable seamless and successful transactions. List of incoterms 2020 & definitions: 1.EXW (Ex Works): The vendor delivers the items to the customer's location, and the buyer is responsible for all transit and export processes. 2.FCA (Free Carrier): In FCA terminology, the seller delivers the goods to a carrier or a specified place, after which the buyer assumes obligation. 3.CPT (Carriage Paid To): The seller pays for the items' transportation to the target country or specified location but not for import fees or taxes. 4.CIP (Carriage and Insurance Paid To): The seller offers insurance coverage for the items during shipment, similar to CPT. 5.DAP (Delivered at Place): The seller is responsible for delivering the products to the buyer's preferred location inside the destination country but is not liable for offloading. 6.DPU (Delivered at Place Unloaded): The vendor unloads the items at the buyer's preferred location within the destination country. 7.DDP (Delivered Duty Paid): The seller is fully responsible for shipping the products to the buyer's preferred location, including any import fees and taxes. 8.FAS (Free Alongside Ship): At the port of shipping, the seller delivers the items alongside the vessel, and the buyer conducts the loading. 9.FOB (Free on Board): The seller is responsible for loading the items onto the vessel at the port of shipping, after which the buyer assumes responsibility. 10.CFR (Cost and Freight): The seller bears the cost of goods and products to the destination port, but the buyer bears the cost of unloading and import charges. 11.CIF (Cost, Insurance, and Freight): The seller offers insurance coverage for the products during shipment, similar to CFR. Difference between CIF and FOB

3. Shipping agreements are critical in the selling and distribution processes. As a result, it establishes who is responsible for items while in transit between the seller and the consumer. When it comes to importing and exporting, there are several shipping arrangements to choose from. CIF(Cost, Insurance, and Freight): When items are sold CIF (Cost, Insurance, and Freight), the seller is responsible for covering all expenses, insurance, and freight to the stated destination. In CIF transactions, the seller organises and pays for the products' transportation to the port of destination, as well as transit insurance. Once the items are placed aboard the vessel, the buyer has responsibility for any damages or losses that may occur throughout the remainder of the voyage. When commodities are carried by sea, the CIF word is often used in maritime trade. Pro’s Con’s Reduced Buyer Risk: The risk is transferred from the seller to the buyer only when the items are placed aboard the vessel at the port of origin, and the seller is responsible for insuring the products during transit. Higher Overall Cost: While CIF may appear to be more convenient for the buyer, the seller sometimes includes shipping and insurance fees in the overall price, possibly raising the price of the products. Convenient Shipping Arrangements: The seller arranges and pays for transportation to the target port, making it easier for the buyer, who does not have to deal with shipping difficulties. Insurance Claim Complications: In the event of damage or loss during transit, the buyer may have difficulty pursuing insurance claims because insurance is normally obtained by the seller. Lower Initial Costs for Buyer: CIF covers shipping and insurance costs in the overall price, which might be advantageous for purchasers who do not want to deal with separate shipping and insurance arrangements. Limited Control Over Shipping: Because the shipping procedure is overseen by the seller, the customer has minimal influence over it. Delays or transportation concerns may be beyond the buyer's control. FOB (Free On Board): The seller's liability ends when the items are placed onto the authorised vessel at the port of shipping, as defined by FOB. The vendor arranges and pays for the transportation of the goods to the port of shipment, but once the products are on board the vessel, the buyer assumes the risk and liability. From that point forward, the buyer is liable for all expenses and hazards related to the shipment. FOB is commonly used for commodities delivered by sea, but it may also apply to other means of transportation, such as air or land. Pro’s Con’s Cost Control: FOB gives the customer additional flexibility in terms of shipment arrangements, carrier choices, and associated expenses. This may Increased Buyer Risk: Because the buyer is responsible for the goods once they board the vessel, there is a greater risk of

4. Pro’s Con’s result in cost savings if the customer selects more competitive delivery choices. damage, loss, or delays throughout the shipping process. Greater Flexibility: FOB may be utilised for a variety of means of transportation, including sea, air, and land, making it more adaptable to numerous sorts of commercial operations. Complex Logistics: Buyers must plan and manage their own shipment and insurance, which may be difficult, especially for new importers. Customization: The customer has the option to tailor the shipping procedure to their individual needs, ensuring that the items are handled in accordance with their specifications. Import Compliance: Because buyers are responsible for customs clearance, import duties, and compliance with import rules, they may encounter complications.