International Shipping and Incoterms
- March 8, 2021
- Posted by: Management inSites
- Categories: Blog Posts, Foreign, Global, Insites, international business, Logistics, Subsidiary
When shipping internationally, especially from abroad to the U.S., setting the transaction terms 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. Choosing the correct incoterms for your transaction is paramount to determining who will pay for shipping, customs, and other necessary fees.
What are Incoterms?
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.
How to Choose the Right Incoterm for You
Several variables can influence the decision of which Incoterm to choose, such as the country of export, existing agreements with customers, and the geographical proximity of the customer to the production site.
For an example of how the country in question can affect which Incoterm you choose, we look to Mexico. 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, consider paying for the shipment to the U.S. and then having the customer pay for everything else.
One crucial detail to note is that the transaction qualifies for drawback if a product is shipped from abroad into the U.S., only to be turned over to a customer in another country. U.S. customs provides a reimbursement known as drawback for items that were not consumed within the U.S. [This topic is covered in another logistics inSite.)
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.
Business Norms
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.)
In Conclusion
Whatever Incoterm you choose for your shipment, be sure that the choice is deliberate and considers all variables. If you don’t choose Incoterms properly, you will have to pay unwanted fees and taxes, which will quickly eat away at your margins. 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.
International Shipping and Incoterms
- March 8, 2021
- Posted by: Management inSites
- Categories: Blog Posts, Foreign, Global, Insites, international business, Logistics, Subsidiary
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.
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.