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Incoterms: Choose Carefully
May 18, 2023 Ken Click, Ursula Wegrzynowicz & Richard Foy, Office of Small Business

U.S. exporters have many decisions to make when selling their goods to foreign buyers. One of these decisions is which Incoterm to use, the conditions of the supply of goods in an international sales transaction. According to the International Trade Administration, “Incoterms, widely-used terms of sale, are a set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specify who is responsible for arranging the movement of the freight, the costs associated with shipping, cargo insurance, documentation, customs clearance, and other logistical activities.”

Each Incoterm has varying degrees of responsibility for the buyer and seller. “Ex-Works” (EXW Incoterms) provides that a U.S. seller give its foreign buyer full control in the movement of the cargo as well as the export declaration. Conversely, “Delivered Duty Paid” (DDP Incoterms) puts the responsibility of arranging the movement and unloading of cargo (including the payment of any related duties and taxes) to a named place of destination, such as the foreign buyer’s location, completely on the U.S. seller. The other nine Incoterms fall somewhere between these two in terms of responsibility.

EXIM’s Export Credit Insurance (ECI) enables eligible U.S. exporters to be protected against foreign buyer nonpayment due to commercial and political risks as well as offer more favorable open account terms to foreign buyers. Qualifying U.S. exporters seeking an ECI policy should choose their Incoterms arrangement carefully though. In the event of a payment default, to perfect a claim EXIM requires a copy of a Bill of Lading which could be a challenge in any Incoterm arrangement that did not give the U.S. exporter control of the movement of the freight. Additionally, if the foreign buyer’s forwarder makes a filing mistake, the onus falls on the U.S. exporter. Either scenario could lead to complications.

An experienced freight forwarder can help U.S. exporters with their shipping needs and documentation. And financing support from EXIM can minimize risk and level the playing field for U.S. exporters. To learn more, click here to schedule a free consultation with an EXIM trade finance specialist.

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EXIM’s Blog postings are intended to highlight various facets of exporting, but the postings are not legal advice, and are not intended to summarize all legal requirements associated with exporting.