Within global trade, goods cross borders to make businesses flourish over time. Depending on the scale at which a business operates, it forms a part of the larger development cycle of the nation. The opportunity to tap into international markets attracts many business owners in our country. But it also makes dubious about various sides of international trade, which is why they often come up with Marine incoterms, that answers questions like:
- Where can they deliver goods?
- What should be their target countries?
- Who bears the risk of loss or damage to the goods in transit?
- Who pays for the transportation cost involved?
To present a standardized answer to the business owners, International Commercial Terms, popularly known as Incoterms come into the picture. If your business involves buying marine insurance for the protection of goods, you must know about incoterms in detail.
What are Incoterms in marine insurance?
Incoterms refer to the internationally-identifiable acronyms that define the nature of relationship between buyers and sellers under a commercial transaction. They were published and developed by the International Chamber of Commerce (ICC) in 2009. In other words, incoterms communicate the specific responsibilities of each party wherever the transportation of goods is involved. For example, these acronyms specify who is obliged to pay for the cost of international journeys, who is responsible to insure the goods transported, etc.
The objective of establishing incoterms with marine insurance is to streamline international trade and avoid any confusion between buyers and sellers regarding imports, exports, legalities, and insurance. They are accepted by legal authorities and governments across the world as trade rules and regulations.
You might also want to know that:
- Incoterms were first published in 1936 and have been updated from time to time.
- The most recent rendition of the incoterms was published in 2010 and is considered the registered tradesmen of the ICC.
What are the Types of incoterms?
There are 11 different incoterms in marine insurance, which are divided into different groups. Each of these categories is based on the delivery location and the parties responsible to cover the cost of each part of the journey. Let’s get into the details.
Incoterms Group E – EXW
Also known as EX Works, these incoterms tend to place major responsibilities on the buyer. The sellers must ensure that the goods are at their premises where the buyers can load or clear the goods for export. In other words, EXW means that the seller will make goods available to the buyer at a set location, which can be a factory, industrial unit, or some other decided place.
This gives the seller the responsibility to load the goods on the cost and risk of the buyer. Also, it is the buyer’s responsibility to get the customs clearance and export documentation required.
Incoterms Group F
Under this group, the seller becomes responsible to deliver the goods via the method of transportation pre-agreed with the buyer. Post this, the buyer will take responsibility for the costs and risks involved. The following table covers the subgroups in the F category of incoterms:
|FCA or Free Carrier||● Similar to EXW
● The seller needs to deliver the goods either to a nominated person, the carrier, or another named location
|FAS or Free Alongside Ship||● Here, the seller needs to deliver the goods alongside the vessel that the buyer nominates.|
|FOB or Free on Board||● Here, the seller needs to deliver goods onboard the vessel that the buyer nominates.|
Incoterms Group C
In this group, it is the seller who bears all the costs to the destination. The risk is transferred to the buyer once the goods are loaded for transportation. These incoterms further include:
|CFR or Cost and Freight||● Similar to FOB except that the seller needs to pay for cost and freight related to the delivery of goods|
|CIF or Cost, Insurance, and Freight||● Similar to CFR except that seller also arrange transit insurance cover against the risk of damage or loss of goods|
|CPT or Carriage Paid To||● Here, the seller holds the responsibility to arrange goods transportation to a named destination but not for insurance|
|CIP or Carriage and Insurance Paid To||● Similar to CPT except that the cost of freight insurance is also related to the seller|
Which of these marine incoterms should you choose?
The selection of International Commercial Terms in marine insurance should be based on their description and the benefits they provide for both domestic and international shipments. You should perform a cost-to-benefit analysis for incoterm selection with transit insurance. To simplify the process of buying transit insurance online, switch to SecureNow – a leading insurance broker in the country.