Incoterms or International Commercial Terms are a set of globally accepted trade rules published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers during the shipment of goods in international trade.
Incoterms help to understand who will pay the transportation, insurance, custom clearance, and delivery cost during the different stages of shipment. These terms eliminate disputes between buyers and sellers, making the international trades smoother.
How It Works:
- Buyer and seller agree on a specific term.
- The term defines who handles transport, risk, and costs.
- Responsibilities are clearly divided.
- The term is mentioned in contracts and invoices.
Benefits:
- Reduces confusion in international trade
- Clearly defines responsibilities
- Minimizes disputes
- Standardizes global trade practices
Example:
An Indian exporter sells goods to a buyer in France under incoterm: FOB (Free on Board). According to it, the exporter delivers the goods to the ship, and after that the buyer is responsible for shipping costs and risks.