Hi, I’m Geoff Runcie and I’m back with another episode of the International Trade Series. This session will focus on an “Introduction to Best Incoterms for Exporting”. What they are, how to interpret them correctly and how to apply them. I’m joined once again by renowned global trade expert Murdo Beaton and Abdul Mann, creator of the cloud-based export solution EdgeCTP Blog.
Today you’ll hear just one in a series of questions presented to Murdo, but if you’d like access to the entire session or future sessions there is a link here. Alternatively, feel free to drop me an email on Support or visit www.edgectp.com.
I hope you find this useful and more importantly it gives you the insight to go global.
Can you tell me which is the best Incoterms for exporting goods overseas?
This is always a question with which many exporters struggle, and possibly also importers, but the selection of the most appropriate Incoterm depends, as I said earlier on many issues. It depends on the longer-term objectivity of the exporter in cultivating a sustainable and ongoing relationship with their particular buyer, and it also may depend on the level of development of the exporter. If an exporter is new to the international scene it would probably be advisable for that exporter to consider adopting an Incoterm that did not take that exporter’s liability too far away from the exporter’s own factory.
On the other hand, you may have a mature exporter who looks at creating a long-standing sustainable relationship with a buyer, and of course, we all know that the most favourable term for a buyer might be to have the goods delivered to their premises. So if they identify a supplier who is willing and capable to do that without any distress to the buyer, then, of course, the buyer is likely to look favourably towards that supplier as an ongoing supplier.
So from a supplier/exporter point of view, it becomes a marketing or competitive edge over your competitors if you can provide more of a service with the Incoterm you may choose, i.e. delivering close to where the buyer is. So it like “Don’t worry about it we’ll get the goods to you, just show me the money.”
Indeed, and I think that as we move forward with global development and as the global supply chain begins to extend itself, it is hugely important for our exporters in the UK to be hugely competitive. So exporters have to be prepared to consider where the opportunities lie for them in whatever market they are targeting.
So it’s not just when we look at best Incoterms for exporting goods and say “Which one is best for us?” We must also consider, do we in determining what’s best for us look at the long term as well? What are our long term objectives? Now we have these long term objectives, what can we do to help us reach those long term goals? It may well be that you have to move away from ExWorks to a term more comfortable for your potential buyer.
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So ExWorks, say you were a brand new exporter, never done exporting before and you’ve got an overseas enquiry that has turned into a sale, the simplest one would be ExWorks “Come and get it and take it away.” But as you grow and want to add more value and be customer-focused you could then start moving towards Incoterms that bring more value back to your overseas buyer.
So ExWorks would possibly be your starting point but in one of our earlier session, we also talked about the mode of transport. So if the buyer wants it shipped on a particular vessel then you’re kind of restricted, you can’t just say go with ExWorks because you might not have a port next to your factory so you’d have to look at another Incoterm to use in order to be able to do that.
If you’re going to agree to the buyer’s wishes then yes of course, but at the same time, you have to take it into account that the buyer is certainly looking to receive a quality product from you but they are also looking to receive it without too much distress. Now if you sell on an ExWorks basis and the buyer experiences a lot of distress in getting the goods from your factory to their warehouse it may actually impact their ambitions to replace an order with you.
Especially if your competitor down the road will deliver it to their door!
Or indeed to a position between them with which the buyer is comfortable. Now, this is almost akin to the issue of currency, you know “Should I be invoicing my buyer in Sterling?” Now for a new exporter again, the use of Sterling is absolutely maybe the obvious choice, whereas for the buyer paying in Sterling might cause certain complication as far as foreign exchange is concerned. So the attention to the currency that is going to be used in the transaction also carries just about the level of the weight of the attention to the use of Incoterm.
So my advice would be yes if you’re new to export then keep ExWorks in the back of your mind as being the most favourable one but please consider what might be best for your own long term objectives. Understanding that in the support community around you there’s a lot of help available to allow you to understand what the additional risks and exposures are to you if you select a term other than ExWorks. The risks and the exposures and also, of course, the benefits that could be available to you.
I hope you enjoyed this audio. If you’d like more information on international trade, go to www.edgectp.com.