Management InSites

International Shipping and Incoterms

When dealing with shipping internationally, especially from abroad to the U.S., setting the terms of the transaction from the moment the customer requests a quote is incredibly important. To avoid problems, unwanted costs, and even potential legal issues, there should be no room for confusion or ambiguity in the contract you set up with your customer. As such, choosing the correct incoterms for your transaction is paramount to determine who will pay for shipping, customs, and other necessary fees.

The International Trade Administration defines Incoterms as follows:

The Incoterms® are a set of 11 individual rules issued by the International Chamber of Commerce (ICC) which define the responsibilities of sellers and buyers for the sale of goods in international transactions. Of primary importance is that each Incoterms rule clarifies the tasks, costs and risks to be borne by buyers and sellers in these transactions.

Deciding which Incoterm to choose can depend on several variables, like the country to which you are exporting, other agreements you have in place with a particular customer, or where your customer is located in relation to where the goods are being produced.

Generally speaking, DAP (Delivered at Place) is a commonly chosen Incoterm. In this case, the only fees the customer pays are the customs and taxes for import. This differs from DDP (Delivered Duty Paid), where the seller pays for absolutely everything. EXW (Ex Works), which is also common, is not normally used internationally, since the buyer must pay for everything. (For companies with U.S. subsidiaries, this tends to be uncommon since the seller (a.k.a. the parent company / manufacturer) typically at least pays for the costs associated with getting the product into the U.S.)

As another example of how the country in question can affect which Incoterm you choose, we look to Canada. Canada has a

Exporting to Mexico can also be complicated because of local idiosyncrasies. In this case, many companies opt to have the customer pay for everything.

If, for example, your U.S. subsidiary must get the goods from the parent company in Europe to send to a customer in Mexico, you might consider paying for the shipment to the U.S., and then having the customer pay for everything else. One important detail to know is that if a product is shipped from abroad into the U.S., only to then be turned over to a customer in yet another country, the transaction is qualified for drawback. Drawback is a reimbursement by U.S. customs since the item was not consumed in the U.S. [This topic is covered in another inSite on logistics.)

United Cargo Management provides a helpful explanation of each of the Incoterms. The chart below, provided by noatum logistics, gives a good overview of each classification.

Whatever Incoterm you choose for your shipment, be sure that the choice is deliberate and that it takes all variables into consideration. Having to pay unwanted fees and taxes, which will quickly eat away at your margins, will occur if Incoterms are not properly chosen. Furthermore, it is advisable to find an international shipping partner and stick with it, rather than constantly shopping for the best rate. You may occasionally pay more, but dealing with someone who knows your company and your product can be helpful in many ways. Plus, they might provide discounts and incentives the more you work with them.

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How can we help you?
Contact us or submit a business inquiry online.
Read more
  • To Palletize or Not to Palletize?

    When it comes time to ship inventory to the United States, many foreign companies are unaware of the standards surrounding palletizing their shipments. While it is possible to ship a container oversees without pallets, it might not be the most cost-effective solution, especially when using an established warehouse or 3PL.

    October 4, 2021
  • Breaking Into the U.S. Water Sector: The Vast U.S.A.

    When considering entry into the U.S. market, it is imperative to remember how vast the U.S. is. While the water in most areas of another country with a small geographic footprint might be similar to one another, that is not the case here.

    July 26, 2021
  • The Changing World of 3PLs

    Third-party warehouses (3PLs) have historically provided companies with an invaluable service: the ability to store inventory and ship it out to customers around the globe. These warehouses are experts at packaging products to maximize order fulfillment.

    July 1, 2021
  • Shipping with HS and HTS Codes

    If your organization intends to ship or receive items to or from overseas, it is important to understand an integral part of the international shipping process: the Harmonized System (HS) and Harmonized Tariff Schedule (HTS), which were developed by the World Customs Organization.

    February 8, 2021
How can we help you?
Contact us or submit a business inquiry online.

International Shipping and Incoterms

In our previous post on the topic, we covered some important things to remember when setting up your company in the U.S. market. Beyond operations, sales, and marketing, a manager would be remiss not to focus on how cultural differences might impact the success of a subsidiary.

The U.S. is not homogenous

Unlike several other countries, the U.S. is vast – and not just in its size. Americans tend to break up the country into its East and West coasts, and the Midwest. But there are even more segments, like the South, Pacific Northwest, the Northeast, Florida, and Texas – all of which differ greatly from each other. There are several big cities, countless medium-sized markets, and even more rural or suburban areas. Interacting with people living in big cities will differ greatly from interacting with people in smaller towns. While it would be unwise to generalize, it is best to understand the culture of the part of the U.S. in which you are doing business before having expectations.

Patience is not always a strength among Americans

When in negotiations or conducting business, Americans tend to want to just get the deal done. While many other cultures take their time, get to know everyone involved, and move along at a comfortable pace, those in the U.S. do not always see a need to drag things out. Get ready for what looks like impatience, when in reality it is just a desire to be efficient and effective.

Don’t plan on in-person meetings 

At least not all the time. The tendency for Europeans and Asians to conduct most business in person is not the same in the U.S. Phone calls, emails, and now even video conference calls are the norm. Businesspeople like to work efficiently, and don’t gather in person unless it is necessary. First meetings, larger negotiations, and important topics are generally discussed in-person. Otherwise, don’t be offended or surprised if many of your interactions are taking place remotely.

Open-minded over traditions

A positive aspect of Americans in general is their ability to have an open mind. Many other cultures rely heavily on traditions, and act in certain ways because history dictates that they should. That is not the case in the U.S. Americans tend to welcome new ideas and concepts perhaps more freely than their foreign counterparts.

That being said, Europeans tend to rely on strongly forged bonds in which trust is paramount. Loyalty is key. Americans tend to be looser and more pragmatic when it comes to doing business. They don’t necessarily need to have known someone for years to begin working with them. At the end of the day, it’s about getting the deal done.