Being an Amazon Seller is not all glitz and glam. You’ll have to become a logistics expert before you can send your first round of inventory into Amazon. Ok, maybe you don’t need to be an expert, but any experienced seller will at least need to have a basic understanding. Having some knowledge on international trade terms will help you better understand per unit costs and how it will affect your inventory overhead. You’ll be more confident in understanding supplier quotes and calculating your true costs.
What are incoterms?
Incoterms, short for “international commerce terms,” were established by the International Chamber of Commerce. These guidelines outline the logistical journey of your product from supplier to customer. While broad in scope, incoterms address crucial inquiries about the product’s trajectory. They delve into the obligations and costs linked to international shipment, delineate the supplier’s responsibilities and their duration, and outline the stipulations for transportation companies regarding the shipment process.
What do Incoterms have to do with Amazon selling?
Incoterms can determine whether or not you go through with a supplier contract regardless of whether it’s sourced locally or imported. As a seller, it’s in your best interest to keep an eye on how choosing specific trade terms will affect your product’s landed cost. Spending upward of 50 cents per unit on shipping can already make a huge dent in your profit, choosing the right trade terms can save you thousands of dollars.
There are 11 common terms that you can run into.
1. EXW – Ex-Works
When you have EXW products, your supplier will only manufacture the product: the rest of it is up to you. The seller won’t load cargo into the ship. The seller won’t be responsible for any damage incurred during the loading. The seller won’t help you with documentation or customs clearance. Your supplier will only manufacture the product: the rest of it is up to you. This can lead to higher per unit costs, as you’ll need to arrange and pay for all subsequent transportation, insurance, and handling costs. A freight-forwarding company can help take away some of the stress of EXW products.
2. FCA – Free Carrier
The seller will manufacture and deliver the items to a carrier selected by you, the buyer. This may include arranging the pre-export documentation and clearance forms, as well as taking care of shipment and loading – however, once the goods are delivered to the carrier, the seller’s responsibility ends, and it’s the buyer’s fault if there is an issue involved in moving the product to the consumer. This can impact your landed costs, as the responsibility for transportation and potential issues during shipment transitions to the buyer once the goods are handed to the carrier.
3. CPT – Carriage Paid To
The seller, or supplier, will produce, deliver, and clear your shipment for export. Your supplier will then deliver your products to a carrier of their choice, typically overseas, and cover the costs of the journey. Once your goods are in the country, responsibility is then transferred to the buyer, you. It’s important to note that there is no cargo insurance included in this, so any cargo insurance will have to be completed by you.
4. CIP – Carriage and Insurance Paid To
Similar to above, the seller will produce, deliver, and clear your shipment for export, however the seller is additionally responsible for arranging and paying for cargo insurance. Usually, this can be negotiated with the seller, regardless of what form of transport you’ll be using. It is only when the products are at their destination that all responsibility will then shift to the buyer. This could influence your per unit costs, but it provides added security during transportation.
5. DAP – Delivered At Place
The seller will deliver the items to a destination that is selected by the buyer, typically their own warehouse, an Amazon facility, or their store. It’s also the seller’s responsibility to make sure that the products are shipped without damage, cover the transport costs, and complete all applicable paperwork. This impacts your per unit costs and landed costs, but ensures a smoother end-to-end process.
6. DPU – Delivered at Place Unloaded
The seller is responsible for delivering the products as well as unloading the goods once they arrive at their destination. Responsibility for the seller only starts once the goods are unloaded, and any risk then transfers to the buyer, so anything that happens between the carrier and the goods’ final destination is up to you. While this might not significantly alter per unit costs, it emphasizes the buyer’s responsibility after unloading.
7. DDP – Delivery Duty Paid
The most comprehensive option in terms of coverage, but it comes at a higher cost. This places the bulk of the responsibility on the seller. It means that not only does the seller deliver the goods to the buyer, they also hold the responsibility for paying duties and taxes, as well as filling out any paperwork needed for clearance. This significantly affects per unit costs and overall landed costs, but it holds the greatest amount of coverage for the seller.
Then there are some specific sea and waterway incoterms to keep in mind.
8. FAS – Free Alongside Ship
With this, the seller is responsible for getting your shipment to the dock or quay where the vessel carrying your shipment is. The seller will also arrange the shipment and fill in any shipping documents needed, such as export permits.
9. FOB – Free On Board
The seller will deliver the goods to the port, but also unload the goods onto the vessel chosen by the buyer. Furthermore, the seller will also pay the transportation costs and fill in any required documentation for the shipment. The only thing the buyer is responsible for is finding the right vessel and filling in the contract for shipment. Additionally, buyers will be responsible for the goods once they are loaded onto the vessel.
10. CFR – Cost and Freight
The seller handles delivery over waterways, including freight costs. The seller will also handle export clearance formalities and pay for freight costs such as loading and unloading the shipment. Furthermore, they’ll handle any paperwork for proof of delivery. While this affects per unit costs and landed costs, it’s important to note that additional unloading and further transportation expenses remain the buyer’s responsibility.
11. CIF – Cost, Insurance, and Freight
This is the most comprehensive coverage available for waterway shipment. The seller will take care of transportation, clearance and customs paperwork, and also cover cargo insurance to a minimum of the equal commercial value of the goods and an additional 10%.
Why is it important to know about incoterms?
Whether you are personally coordinating your own logistics or having your supplier or third party logistics provider do so, understanding incoterms will give you a competitive edge as an Amazon seller.
The cost to ship per unit can ultimately determine your listing price, profit margins and flexibility in meeting your customers needs while differentiating your products from your competitors. By understanding incoterms you’ll be able to make better decisions when choosing your suppliers and negotiating trade terms with them.
Shipping goods internationally will be a lot easier and less risky both for the seller and for the buyer. By defining where responsibility for the products starts and ends, there are no misunderstandings between the buyer and the seller.
Incoterms are ultimately a protection both for the seller and the buyer, and understanding how to use them will protect any Amazon seller should anything happen to a shipment.
If you’re struggling to understand how to use incoterms and whether or not they’re applicable to you, send us a message – we’re Amazon experts, and we know what you need to know.