May 27
We covered the basics of Incoterms 2000 in previous post. But this time let’s look at some real examples to understand this whole process in real life.
The main reason for Incoterms is that the seller must calculate the price of the product with all extra costs included. Let me give you some examples.
- EXW – EXWORKS is mostly used when the business is done within one continent and the transportation will be done by land. This way the seller will provide the prices in EXW terms. The buyer will organize the transportation.
But there are some cases when the seller can take care of transportation because he can get better price. The example is when trading from poorer country to a more advanced country this way the transport will be cheaper for the poorer one. So the price for products stays the same, but in the Invoice there is an added cost for transportation.
Here is an example screen shot:
- Some companies use Ex Factory instead of Ex Works. It is used because they have more than one factory throughout the region and you can choose from which factory you would like to load these goods.
- FOB – Free On Board. If you have good relationships with some agent or agency who can get you a good price for transportation it is a wise choice to manage the transportation yourself. This way you will get more control over the transport and more confidence that everything is going well. In this case choose the FOB terms.
Here are some screen shots from price lists of how FOB is viewed:
The main advice is to look for these transportation terms in every price sheet. This is very important! From my experience you can get 50 offers from Chinese companies with FOB terms and there will be one with others – and it will be hard to compare the prices between them.
