When we take a decision, we mostly think of the risk and the cost involved – is the risk worth taking, does the cost justify the output?
‘Cost vs Risk’ is the base premise on which Incoterms operates. The seller and the buyer share the risk and cost of transporting a product. It varies with each set of partners and the product.
Because most products that is transported across countries passes through 12 critical points in its journey! These critical points across international borders – in which cost, obligation and risks are involved is clearly depicted in the illustration below.
From the origin country to the destination country these 12 critical points has its own costs.
These costs needs to be properly analysed and accounted to either buyer and seller.
And as you could find, the risk and cost of the proper handling of the goods to the buyer can transfer at any point across the transport based on the mutual understanding of the seller and the buyer.
And each point of transfer has a specific Incoterm clarifying the obligation.
Based on the seller obligation to pay along this transit, the Incoterms are categorised into four groups. These categories and the terms will be presented in the next part of the series.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about any specific circumstances.