The pandemic made selling and international shipping complicated. The workforce depleted, shipped containers remained adrift, and owners tried to stay afloat.
COVID-19 shook the economy. But companies’ dreams did not waver. Businesses still want their products to change the world.
With OceanX’s help, company owners can see this dream become a reality. But the first step is covering some international cost coverage. If we wonder who covers what, then Incoterms (International Commercial Terms) are a great place to start.
What are Incoterms?
Beginning to understand Incoterms can be frightening. We see the complicated phrases and graphs. The next thing we know, we have a pit in our stomachs. Understanding Incoterms makes international shipping easier to digest.
Incoterms are published by the International Chamber of Commerce (ICC).
Incoterm’s 2020 version is the latest. It is a guide constructing businesses on the logistical side of selling products. Before selling internationally, the seller and buyer agree on associated terms. The buyer and seller agree on costs, risks, and responsibilities.
Note: When we Google Incoterms, we see term charts. Tons of them, in fact. These charts are a valuable guide. However, the entire Incoterm spectrum is hard to fully comprehend and needs to be referenced by the ICC website. Or, consulted by 3PL (third-party logistics) experts.
Incoterms: Who is Responsible for What?
In the process of global fulfillment, where do incoterms apply? Also, who is responsible for covering the cost of what?
Yes, incoterms are complicated to understand. But thankfully, with the right 3PL and the 11 terms, not only can we grasp but commit to the terms that we need.
11 incoterms and their abbreviations:
- EXW (Ex Works)
- FCA (Free Carrier)
- FAS (Free Alongside Ship)
- FOB (Free on Board)
- CFR (Cost of Freight)
- CIF (Cost Insurance & Freight)
- CPT (Carriage Paid to Place)
- CIP (Carriage & Insurance Paid to Place)
- DAP (Delivered at Place)
- DPU (Deliver at Place Unloaded)
- DDP (Delivered Duty Paid)
If you’re feeling overwhelmed, don’t worry! Here at OceanX, we make it our mission to simplify terms and guide the brand owner through the entire process. Just hang in there!
What Costs need to be Covered
Now that we know the different incoterms, here are the 12 cost factors.
12 international shipping cost factors need covering:
- Export packaging
- Loading charges
- Delivery to port
- Export taxes & duty, customs clearance
- Origin Terminal charges
- Loading on carriage
- Carriage charges
- Destination terminal charges
- Delivery to destination
- Unloading at destination
- Import taxes & duty, customs clearance
Which Terms Cover What Costs?
This chart shows a general idea of who pays for what item. Again, guides are great, but we recommend 3PL consulting or referring to the ICC website for the best possible results.
What is VAT?
Another thing we should discuss is VAT (Value-Added Tax), an extra tax rate when shipping internationally.
VAT is not to be confused with United States Sales Tax for purchases. VAT is simpler. The US charges amounts for various states, categories, or levels (state, local, and federal). VAT charges a flat-rate fee at the end of a sale.
In the trading system, deem yourself the tax middle-man if you are a business owner. Company owners collect VAT charges from their customers and later pay the government.
VAT rate charges and laws differ between countries. In some cases, you can get a tax exclusion. For example, in the UK and Ireland, books qualify as a “VAT tax-free” item.
Ready to Tackle International Fulfillment with OceanX?
“What do we charge the customer?” The question that keeps owners awake at night. Our advice? Research the region and see what they are accustomed to paying for.
Places like Australia are accustomed to paying added incoterms. While on the other hand, regions like Canada do not usually pay additional fees.
If owners know their audience and region, they can determine whether or not the additional charges will upset the customer.
In any case, understanding financial duties like incoterms, VAT, and fulfillment makes the process far easier. Yet, the best way to tackle international fulfillment is with a 3PL like OceanX.
We have seasoned professionals that know the ropes about international shipping. If you need more global shipping guidance, don’t be shy. Say hello today!