What are Incoterms®?
Protected by the International Chamber of Commerce (ICC), Incoterms® are international rules for the interpretation of trade terms. Essentially, they make international trade easier and help both sellers and buyers in different countries understand each other.
Incoterms are the terms that you and your overseas buyer agree to when trading, and they outline your roles and responsibilities. They include:
- rules and regulations around delivery and payment
- risks involved in the sale and delivery of products (in your case, wine exports); and
- other conditions related to exporting and importing.
Incoterms also set out how these rules relate to typical legal agreements and contracts of sale for export and import.
Incoterms® and Commercial Contracts website
The official ICC website publishes ‘preambles’ to each of the 11 Incoterms rules, together with basic information and background. In order to understand the obligations of both buyer and seller, which is essential for the correct use of Incoterms, we recommend consulting the full published texts of the 11 Incoterms, available online from ICC Digital Library.
How Incoterms® work
Incoterms are displayed as three-letter acronyms (e.g. FOB for ‘Free On Board’). Each of the 11 acronyms has its own set of terms, which outline the steps of international trade transactions. They also define the point where the costs and risks of the transaction transfer from you to your buyer/importer.
The Incoterms you and your buyer agree on will state who is responsible for organising, paying for, and managing:
- shipment, transport and carriage
- insurance
- export certificates; and
- duties, taxes and export documentation.
They also cover customs clearance and other logistical activities. A freight forwarder may be able to assist you or manage these activities on your behalf.
Incoterms® 2020
The table below from Austrade shows each Incoterms rule and the activities you and your buyer are responsible for under that rule. Depending on the Incoterms you agree on, you will be responsible for specific activities and their costs, so make sure you know:
- the terms you are agreeing to;
- what you need to do under those terms; and
- what the associated costs are.
If you don’t know these things, you can't accurately set your export prices. Not only can this result in lost profits, damage to your reputation and legal action, but mistakes and misunderstandings can be costly in terms of your relationships with buyers and importers in your chosen region.
Working with your wine buyer
Be aware that, depending on the logistics at your buyer’s end, you may not be able to use some of the Incoterms. That’s why it’s so important to communicate well with your buyer/importer and discuss your obligations under the relevant Incoterms rules.
Getting Incoterms wrong can have significant financial consequences. For example, while FCA applies to all modes of transport, FOB only applies to waterway or sea transport. Also ensure you include the closest port on pricing – including a general FOB can be misleading when it may need to be FOB Adelaide, for example.
Speak to your buyer to understand what options are available to you both. There is no point deciding on Incoterms if the transport or infrastructure is inadequate or doesn't exist.
Related reading
Wine Export Ready has been developed in partnership with Austrade.