Understanding Incoterms is crucial for both buyers and sellers in international trade, as these terms define the responsibilities, risks, and costs associated with the transportation and delivery of goods. For a stainless steel buyer in the U.S., knowing the most secure Incoterms can help in making informed decisions that minimize risk and clarify obligations. Here are five Incoterms that are particularly relevant for ensuring security and clarity in transactions. And we dive also into the topic, why DDP is the best Incoterm for buyers.
5 Incoterms to Ensure Security and Clarity in International Transactions
- DDP (Delivered Duty Paid): Under the DDP incoterm, the seller assumes most responsibility. They are responsible for delivering the goods to the named place in the buyer’s country, covering all costs and risks involved in bringing the goods to the destination, including import duties and taxes. This term is often considered the most secure for buyers because it places the maximum obligation on the seller to manage the entire shipping process, customs clearance, and payment of tariffs.
- DAP (Delivered at Place): DAP requires the seller to deliver the goods to a specified destination in the buyer’s country, ready for unloading at the named place. The seller bears all risks and costs associated with the delivery, except for duties, taxes, and other official charges payable upon import. For buyers, this term offers security by limiting their responsibilities to import clearance and related costs.
- CIP (Carriage and Insurance Paid To): CIP obligates the seller to arrange and pay for the carriage and insurance to the named destination. The seller also assumes all risks until the goods are delivered to the first carrier. This term provides security for buyers by ensuring that insurance is in place during transportation.
- CIF (Cost, Insurance, and Freight): Similar to CIP, CIF requires the seller to cover the costs, insurance, and freight of delivering the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel. While CIF is traditionally used for sea and inland waterway transport, it offers buyers the security of having insurance coverage during transport.
- EXW (Ex Works): EXW places minimum obligations on the seller, who must make the goods available at their premises or another named place. The buyer assumes all costs and risks involved in taking the goods from the seller’s location to the destination. While EXW gives the buyer complete control over the transportation and logistics, it requires a good understanding of the processes involved.
Why DDP is Often Considered the Best for Buyers:
DDP is often viewed as the best Incoterm for buyers, particularly those without extensive experience in international shipping or those looking to minimize their risks and responsibilities. This is because the seller is responsible for all costs and risks, including transportation, insurance, customs clearance, and payment of tariffs and taxes. This comprehensive coverage ensures that the buyer does not need to deal with the complexities of international transport regulations, customs procedures, or unexpected costs, making the transaction smoother and more predictable. However, it’s important for buyers to ensure that their sellers are fully aware of and capable of handling all obligations under DDP, as any non-compliance or misunderstanding can lead to delays, additional costs, or legal issues.
Suppliers might be hesitant to offer DDP for various reasons
Suppliers might be hesitant to offer DDP (Incoterm: Delivered Duty Paid) for various reasons. Primarily, the extensive obligations and risks associated with DDP can be daunting, especially for suppliers who are not familiar with the import customs regulations and tax structures of the buyer’s country. Managing the entire shipping process, including customs clearance and payment of duties and taxes, requires a deep understanding of the destination country’s regulatory environment.
This can be particularly challenging in countries with complex or highly bureaucratic customs procedures. Or, as we have often reported, the business model of these suppliers is rather vague, non-binding and they cancel orders as soon as even one difficulty arises or they do not have the material available that they actually wanted to sell.
Reliable suppliers are confident in their logistical capabilities
However, reliable suppliers who are confident in their logistical capabilities and have a strong network of shipping and customs brokerage partners are often willing to offer DDP Incoterm. This willingness signals a supplier’s commitment to customer service and their confidence in managing international logistics efficiently.
Offering DDP can also be a competitive advantage for suppliers, as it simplifies the purchasing process for buyers, making the supplier’s offer more attractive. It indicates that the supplier is experienced in international trade, has the necessary operational capabilities, and is willing to go the extra mile to ensure a seamless delivery experience for their customers.
Thus, while not all suppliers may be willing or able to supply under DDP Incoterms, those who do can be seen as more reliable and customer-focused.