LinkedIn respects your privacy

LinkedIn and 3rd parties use essential and non-essential cookies to provide, secure, analyze and improve our Services, and to show you relevant ads (including professional and job ads) on and off LinkedIn. Learn more in our Cookie Policy.

Select Accept to consent or Reject to decline non-essential cookies for this use. You can update your choices at any time in your settings.

Join now Sign in

From the course: International Logistics

Classification of Incoterms

From the course: International Logistics

Classification of Incoterms

“

- It's not easy to determine which Incoterm is best for your company. For a detailed explanation of each of these rules and how you should apply them, I highly recommend this book, "Incoterms 2020, Obligations, Costs, and Risk". But for now, you can use a simple approach by classifying them into categories. This can help you determine when it's appropriate to use a specific rule. You can classify Incoterms by three different criteria that all have to do with the transport of the order between exporter and importer. First is the mode of transportation. Some terms apply to any method, while others apply only to ocean transportation. This is the most commonly used method for classifying Incoterms. Second is the payment for transportation. Sometimes the importer pays shipping costs directly. With other rules, the exporter pays the cost and then charges the buyer for this service. The third criterion defines when ownership transfers from the seller to the buyer. This of course determines who's taking the risk if something happens to the shipment during transport. I've included a chart in the exercise files that shows you how each Incoterm is classified within each of these three criteria. By grouping Incoterms into these three categories, buyers and sellers can more easily decide which rules best align with their company's business strategy. For example, there are many inherent risks involved in any global transaction. Products can be lost, stolen, or damaged in transit. There might be delivery delays due to port congestion or any other supply chain disruption. If you're an importer and your strategy is to avoid taking these risks, you can choose among the Incoterms that transfer ownership at the destination, as close to you as possible. This demonstrates one more time that a solid understanding of how to apply Incoterms is important for long term success in global logistics.

Contents