Use Incoterms to your advantage
INCO Terms, or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce relating to international commercial law. Understanding and using the terms correctly and strategically can serve as a source of competitive advantage – learn how here!
Incoterms clearly define the roles and duties between seller and buyer in an international transaction involving transportation and delivery of goods, for example who takes care of insurance of the goods, licenses, permissions, customs etc. Essential things to know when closing a deal, as they all involve some kind of cost that needs to be taken into account. There is really no such thing as “free freight”, the question is just whether the buyer or the seller pays the costs? Knowing the terms inside and out, being in full control of your delivery chain and procedures, and not least, the costs involved with these, will allow you to use them as strategic leverage to close a deal.
Using Incoterms strategically
Whether you are a seller or a buyer it is all about being able to account for all charges in the sales process, not just the product itself, but also packaging, pick-up at origin, main-mode of transportation and customs duties. Including these costs in a sales contract will help you avoid unknown costs and could be the tipping point as to whether you make a profit or not. It is all about risk management – only if you are aware of all costs of transporting goods to your customers, will you be able to factor them into the price. This way, Incoterms can be used as the last leverage to close a deal. Here are a couple of examples:
- Upselling – “We will take care of all costs for freight, customs etc. if you purchase for at least EUR 1000”
- Offering to insure the cargo if the customer buys an expensive item, e.g. a car
- Ecommerce operators can bulk together orders before they go through customs. The deliveries in the bulk are then considered cleared in customs/national and bulking them together will make the administration process more efficient.
Seamless delivery closes the deal
When properly coordinated with other elements of a sales agreement, as well as with the contracts of carriage and insurance, trade terms become a very powerful tool in the quest to mitigate supply chain troubles. If products quality and price are on par with your competitors, the next order might very well go to the seller that excels at facilitating the movement of goods.
Text by: Consignor, email@example.com