Whenever the international marketplace becomes more expensive - be it through market pressure, new tariffs, or changing trade dynamics, reassessing your Incoterms® should always be high on the list of things you do in response. If the international marketplace is in a state of upheaval, examining your Incoterms® and determining if they still work for the current market realities can be one of the easiest and surest ways to save costs and offset a high-duty environment. 

But maybe you have never reviewed your Incoterms® before. After all, the details surrounding Incoterms® are not updated every year, and it’s not uncommon for businesses to choose one that works and keep using it forever. It’s also possible that you don’t even know what an Incoterm® is - you just read ‘offset a high-duty environment’ in the paragraph above and kept going. 

Maybe you don’t know how exactly Incoterms® affect who pays Customs duties and taxes or what role they fill in the importing process, but regardless of the size, scale, or experience of your importing business, understanding Incoterms® is going to be more important than ever - especially during turbulent times in the international marketplace. So, in this week’s blog post, we are going to cover the broad strokes, including what to look for when renegotiating in a marketplace that has become much more expensive to operate in. 

What are Incoterms®? 

Incoterms®, or “International Commercial Terms,” are a standardized set of terms that are used in sales contracts. Their creation arose from a necessity for a common set of rules and guidelines when buying, selling, and transporting goods internationally. They clearly define responsibility and liability for goods during those goods’ shipment and essentially function as a global language that buyers and sellers can use to clearly determine their roles in a transaction. Incoterms® also sets who pays the specific costs of those goods. Incoterms® can also affect Customs duties and taxes, specifically, who is responsible for them. 

A good example of an Incoterm® is the Delivered Duty Paid (DDP), which is defined as a

“This commonly used term places the maximum obligations on the seller and the minimum obligations on the buyer. Risk transfers when the goods are ready for unloading from the arriving means of transport, at the named place of destination (at unloading point if specified) AND cleared for import.” 

In other words, 

• The seller assumes full responsibility for the costs of delivering the goods to the agreed-upon destination. 
• The seller pays both export and import duties, taxes, and fees. 
• The buyer is free of any risk or cost until the goods are unloaded at the named destination - most typically, the buyer's place of business. 

Every Incoterm® lays out these configurations differently, and which makes the most sense for your business is a vitally important part of the importing process. 

Why Does this Matter Now?

The truth of the matter is that during times of significant market shifts when finding cost savings becomes more important than ever, it is vital to examine how your business is proceeding and what dials you can turn to maintain financial equilibrium. There are many of these ‘dials,’ including examining your logistics plan and looking for other free trade agreements abroad, but one of the simplest ways to save is by reviewing and ensuring that the Incoterms® you are using still make sense. We encourage importers to do this regularly anyway, but when the market approaches turbulence, it’s even more important to take the time. 

It is recommended that you ask questions of your partners. Do the terms you agreed upon even a year ago still make sense for the business you are doing now? Is there a better or more coherent way of proceeding - one that takes into account a potentially higher duty environment for your goods? These are the questions at the heart of this, and the answers could lead to significant savings and a way of doing things that are more in tune with the realities of the global marketplace. 

Are There Any Resources I Can Take Advantage of?

Of course! First and foremost, if you are still not entirely sure what an Incoterm® is or what the different options are for you as an importer, then we encourage you to visit the PCB Learning Center, in particular, our course covering “How to Choose the Best Incoterm®.” In this free webinar, we cover everything there is to know about Incoterms®, from the different types to how they can be effectively utilized to ensure your business is in the best possible when interacting with your partners. Our webinars are run by industry experts who are there to answer your questions and make sure that you are prepared to make the right choice for your business at the conclusion of the discussion.

Beyond that, our team is always here to help you with any questions or concerns you may have about Incoterms® or the way they are chosen or applied. However, our team is also available to work with you in a more personalized and bespoke way to determine the best course of action for your business. 

Our Trade Advisory and Freight Management teams are standing by to ensure that your business is importing as effectively as possible - and that includes setting your Incoterms® up as efficiently as possible.

For most established importers, this post was likely a review and reminder to take your entrepreneurial vitamins. Incoterms® are a vital part of the importing process, and knowing which ones you are using and being mindful of why is just prudent business acumen. However, if there is one point that we hope you take away from this one, let it be this - if you are looking for ways to save on some costs, managing your Incoterms® could be the lever that relieves some of that pressure. 

The things that worked even six months ago may not be ideal for the world of today, and knowing what your options are while staying adaptable to changing conditions is what separates a thriving importing business from a floundering one.