FOB - ship point or destinationFreight terms in domestic business seem so simple. Responsibility for shipping cost transfers at the loading dock - either on the shipping end or the receiving. Less often discussed (fortunately!) but equally important is the transfer of "risk of loss." That same physical demarcation also dictates ownership (important for accounting purposes as well as understanding which party bears the risk for loss or damage.)
Pretty simple - and the system with which American SMBs are accustomed. Perhaps that's the reason that Incoterms 2010 seems so convoluted. And yet there is no disputing that international logistics involve many more modalities, risks & details. And therefore it is appropriate to have a greater degree of granularity in managing costs and risks.
Incoterms 2010 - a simplified roadmapThe point is that it is far preferable for everyone to understand exactly who has responsibility for risk (insurance) and cost at each step along the way. International risk management is a focus of many companies considering international business development - and rightly so. Logistics is an area where those risks are clearly defined, and therefore easily managed.
This great video (approx 10 minutes, produced by @UKTI - UK Trade & Investment) provides an overview of Incoterms 2010, context and detail.
Security, domestic use & referenceDid you realize that under Incoterms 2010:
- you assume obligations to provide security information
- that the specific term indicates not only risk for loss but type and amount of insurance coverage which is obligated
- that the terms are modified to accommodate domestic use as well
- failure to reference the correct version of the terms (e.g. Incoterms 2010) in all contractual documents introduces inadvertent risk