Why is trade terms important in cross-border e-commerce?

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In cross border e commerce, it is important to have a clear understanding of the different international commercial terms that may be used in order to ensure that both parties are clear on the terms of the transaction. This can help to avoid any misunderstandings or disputes that may arise.

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Cross border e-commerce involves transactions between buyers and sellers in different countries. International commercial terms (INCOTERMS) are important in cross border e-commerce because they establish who is responsible for what costs and risks associated with the shipment of goods.

INCOTERMS are published by the International Chamber of Commerce (ICC) and are regularly updated to reflect changes in international trade. The most recent version is INCOTERMS 2020.

There are 11 different INCOTERMS, divided into two categories:

E: terms for any mode of transport
F: terms for shipments by sea or inland waterways only

The most commonly used INCOTERMS are:

EXW (Ex Works): The seller makes the goods available at their premises. The buyer is responsible for all other costs and risks associated with taking possession of the goods.

FCA (Free Carrier): The seller hands over the goods to the carrier nominated by the buyer at the seller’s premises, or at another named place. The buyer is responsible for all other costs and risks associated with taking possession of the goods.

FAS (Free Alongside Ship): The seller hands over the goods to the buyer alongside the ship at the named port of loading. The buyer is responsible for all other costs and risks associated with taking possession of the goods.

FOB (Free On Board): The seller hands over the goods on board the ship at the named port of loading. The buyer is responsible for all other costs and risks associated with taking possession of the goods.

CFR (Cost and Freight): The seller must pay the costs and freight necessary to bring the goods to the named port of destination. The buyer is responsible for all other costs and risks associated with taking possession of the goods.

CIF (Cost, Insurance and Freight): The seller must pay the costs and freight necessary to bring the goods to the named port of destination and must also procure cargo insurance against the buyer’s risk of loss or damage in transit.

CPT (Carriage Paid To): The seller pays the freight necessary to bring the goods to the named place of destination. The buyer is responsible for all other costs and risks associated with taking possession of the goods.

DAT (Delivered At Terminal): The seller must pay the freight and deliver the goods to the terminal at the named port or place of destination. The buyer is responsible for all other costs and risks associated with taking possession of the goods.

DDP (Delivered Duty Paid): The seller pays all costs and incurs all risks associated with delivering the goods to the named place of destination, including any duty or taxes.

If you are engaged in cross border e-commerce, it is important to choose the right INCOTERM for your transaction. The INCOTERM you choose will determine who is responsible for what costs and risks associated with the shipment of goods.

You can find more information about INCOTERMS 2020 here:

https://www.iccwbo.org/products-and-services/trade-facilitation/incoterms-rules/

jean_patterson

International commercial terms (Incoterms) are important in cross border e-commerce because they define the responsibilities of buyers and sellers throughout international trade.

Here are some of the reasons why Incoterms are important for cross-border e-commerce:

• They provide clarity and structure to international transactions. Incoterms spell out the responsibilities of buyers and sellers in terms of, for example, who is responsible for transporting and insuring the goods, paying duties and taxes, and ensuring compliance with customs regulations. This is especially important for sellers, as it ensures they are not liable for any unexpected costs or other issues that may arise.

• They reduce misunderstandings and disputes. International commercial terms provide a common language for buyers and sellers to use when negotiating the terms of the sale. This reduces the chance of misunderstandings and potential disputes arising from either party allegedly not being aware of the rules or clearance regulations that apply.

• They help with risk management. Incoterms detail who is responsible for what in a transaction and help manage risk in international e-commerce. This is especially important when there is a lack of trust between buyers and sellers, as Incoterms provide a platform for agreements and understanding throughout the process.

• They provide legal certainty. Ensure that international transactions are transparent and undertaken in accordance with universal standards and rules.

For more information, this guide from the International Chamber of Commerce provides a helpful overview of the different Incoterms: https://iccwbo.org/publication/incoterms-2020-2010-english-version/