If you are looking to open your own online store, I am sure that you already know everything about ecommerce, dropshipping, and online marketing. Yet I bet that you have never heard of Incoterms.
International Commercial Terms, abbreviated as Incoterms, are essentially rules that govern international sales contracts. The International Trade Administration defines incoterms as “a set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specifies who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.” Because they are so widespread, sometimes they are also used for domestic shipments.
Watch the video to learn more about incoterms:
In this article, I will discuss three things that you should know about Incoterms and ecommerce. I promise I will not use boring legal concepts, but I will stick to the real stuff that you will have to deal with.
Are Incoterms Relevant for Ecommerce?
The answer is yes (of course), but it is trickier than it looks. Ecommerce has two sides: you sell B2C to your customers but you buy B2B from your suppliers.
As far as B2C is concerned, Incoterms may be relevant only if you sell abroad. There is some level of disagreement here, because on one side, your customers will never sign a sales contract, yet on the other they expect that the goods be delivered to their doors under certain conditions. In practice, this is exactly what Incoterms are about.
The picture is much less nuanced on the B2B side. Unless you use a dropshipping platform that takes care of all of the manufacturing and logistic process, it is highly likely that you will have to buy under some Incoterms rule.
What Are the Most Important Incoterms for Ecommerce?
When buying online, customers generally expect two things:
1) That the goods arrive at their doors.
2) That they are not required to pay one cent more than what they have already paid online.
These are the requirements of the Incoterms rule Delivery Duty Paid, also called DDP. This rule requires that the seller (i.e. you) takes care of everything. Basically, that is the only Incoterm that makes sense for an ecommerce B2C transaction.
When you buy B2B instead, you can use the whole range of Incoterms. The choice would depend on your specific situation, but in general for a small business it is better to buy under the C-Group or D-Group Incoterms, which place transport (and other) obligations on the seller.
The golden rule is: unless there is a strong reason for you to carry out burdensome obligations such as transport (for example because you are more efficient), it is better to leave them to the seller.
What Is the Most Important Thing About Incoterms to Pay Attention to?
By far, the most important thing is that you use Incoterms coherently with your business. If you promise customers home delivery all included, you must use DDP, or any domestic version of it.
That is easy because you can control it. When you buy B2B, it gets more complicated.
When sourcing products, you may use marketplaces such as Alibaba or DHgate, or B2B e-partnering platforms such as Globartis.
On these portals, suppliers make their prices with the Incoterms already included. For example, if I sell clothes under DDP, which includes transport, I will ask for a higher price than if I sell the same product under FCA, which does not include transport.
Moreover, many times suppliers use the wrong Incoterms rule. Therefore, you will have to contact them and ask to sell under the Incoterms rule that is more appropriate to you.
