If you’re going to be shipping a hardware product internationally, then it’s important that you think carefully about your shipping terms. Otherwise, you can end up getting in arguments with your resellers/consumers that ultimately damage your reputation, cost you money, and hurt the buyer.
For example: What happens if the product arrives and it’s already damaged? What if it gets lost in transit? What if it is held at customs?
These can be muddy waters indeed, so follow the instructions below to familiarize yourself with ‘Incoterms’, and how they can help to protect you.
What Are INCO Terms?
INCO terms – also known as Incoterms – is an abbreviation of ‘International Commercial Terms’. These are rules and guidelines that outline the specific requirements and responsibilities of the sellers and buyers when it comes to the delivery and receipt of goods overseas. They explain who is responsible for which costs, and at which point you’ll hand over the risk of loss to the buyer.
These terms were published originally by the International Chamber of Commerce, and are very widely used in commercial transactions and procurement. They are accepted by governments, legal authorities and most other governing bodies, and can help to settle disputes.
What You Need to Know
While it’s worth researching Incoterms in full in your spare time, there are some basics that will help most startups and entrepreneurs to know what to do in the majority of cases.
The specific terms will of course depend on the type of delivery being used, and on the terms you wish to offer. Thus there are 13 types of INCO terms in use, which include Ex-Words, Free on Board, Cost Insurance Freight, and Delivery Duty Paid. We have listed the most commonly used terms below:
EXW: Here, the seller/exporter will make the goods available to the buyer at their own premises. This means that the buyer will be responsible for all of the associated costs (transportation, duties, insurance), and will accept the loss of goods as soon as they have been removed from said premises. Of course, this protects you from incurring costs associated with undelivered parcels/damage, but it might also deter some sales. This is not generally used for selling to consumers.
FAS: In FAS (Free Alongside Ship) you transport the goods to the port of export, but the buyer will be responsible for loading goods onto vessels and paying costs from thereon in. Of course, this applies much more to B2B sales.
FCA: Free Carrier means that the seller/exporter will be responsible for clearing the goods for export and delivering them to the carrier and location that the buyer specified. From there, it is then the buyer’s responsibility to load the goods and to assume risk of loss – unless the chosen location is the seller’s premises.
FOB: FOB is ‘Free On Board’ means that you deliver the goods from your place of business and clear them for customers/load them onto the vessel. As soon as the goods have crossed onto the ship, all responsibility is transferred to the buyer.
DAF: DAF – Delivered At Frontier – means that the seller will be responsible for the delivery of the goods all the way to the named point and place at the border between countries. You’ll also have the burden of risk of loss at the frontier. However, the buyer will pay the costs of transportation to the final destination.
DDU: This is ‘Delivered Duty Unpaid’ in which you’ll be responsible for all costs involved in delivery and the risk of damage. However, the buyer will pay the duties and the inland transportation and transportation to the final destination.
DDP: Delivered Duty Paid simply means that you’ll be handling all elements of the delivery and paying all costs right up to the destination. This is a door-to-door delivery service which will include customs clearance where necessary. This is what you’ll probably be most likely to use when selling directly to your customers.
As you can see then, it all gets a little complicated and there are a lot of options to consider when deciding what terms you want to offer. As mentioned, it’s worth doing some serious reading around the subject to decide which best suits your business model and your means. There is some more detailed information here.
Whatever you decide, just ensure that you have taken the time to consider your options, and that your terms are communicated clearly to your buyers. This will help you to avoid any difficult situations and could save you a lot of money in the long term.
Do you have any experience with INCO terms? What do you offer your buyers? Let the discussion commence in the comments section below! Also, do subscribe for free updates and more information on shipping terms.