In import-export, negotiating the selling price is not the only factor that determines how effective a contract is. Delivery terms (Incoterms® 2020) also play an important role because they affect logistics costs, responsibilities, risk, customs procedures and the point at which the goods are handed over. Many businesses focus only on negotiating price and overlook negotiating delivery terms. As a result, they end up bearing extra costs or taking on unnecessary risk during transport.
The article below shares 10 tips for negotiating delivery terms with international partners to help businesses choose the right option and protect their interests.
What Are Delivery Terms (Incoterms)?
Incoterms® 2020 is a set of international trade rules defining the responsibilities of the seller and the buyer regarding:
- Delivery and receipt of the goods.
- Transport costs.
- Insurance costs.
- Export procedures.
- Import procedures.
- The point at which risk transfers.
Choosing the right delivery term helps the parties understand their obligations and limits disputes during performance of the contract.
Why Negotiate Delivery Terms?
Delivery terms affect many factors such as: total logistics cost, the ability to control the shipment, the choice of carrier or airline, delivery time, insurance cost, responsibility when loss or damage occurs and more. A suitable delivery term helps you stay more proactive in import-export operations.
1. Understand Your Company's Needs
Before negotiating, a business needs to determine:
- How much control do you want over the transport process?
- Do you have experience with import-export procedures?
- Do you have a reliable Freight Forwarder network?
- Is the goal to optimize cost or to shorten delivery time?
Clearly determining your needs helps you choose the right Incoterms rather than simply accepting the terms your partner proposes.
2. Master the Incoterms® 2020 Rules
EXW (Ex Works)
- The seller delivers the goods at their premises.
- The buyer bears almost all costs and risks from the point of collection.
Suitable for businesses with plenty of international logistics experience.
FOB (Free On Board)
- The seller is responsible until the goods are loaded onto the vessel at the port of export.
- The buyer bears costs and risks from that point.
This is a common term in sea freight.
CIF (Cost, Insurance and Freight)
- The seller pays the freight and insurance to the destination port.
- Risk still transfers to the buyer once the goods are loaded onto the vessel.
Businesses need to clearly understand the difference between cost and the point of risk transfer.
DAP (Delivered At Place)
The seller is responsible for transport to the agreed place, while the buyer carries out import procedures and pays the taxes and fees in the importing country.
DDP (Delivered Duty Paid)
The seller bears almost all responsibility, including import procedures and taxes in the buyer's country. This term should only be used when the seller has sufficient capability and a clear understanding of the regulations in the importing market.
3. Don't Just Negotiate Price - Negotiate Total Cost
A low quote does not necessarily mean savings. You need to account for: freight, surcharges, documentation fees, THC, container demurrage, insurance cost, clearance cost, inland transport and more. Compare the Total Landed Cost rather than looking at the product unit price alone.
4. Identify Which Party Has the Logistics Advantage
If your business has: a reputable Freight Forwarder, good freight rates, import-export experience and more, then you should consider terms such as FOB or FCA so you can arrange transport proactively. Conversely, if you don't yet have much experience, terms such as CIF or DAP can help reduce your workload in the early stages.
5. Clarify Responsibility for Buying Insurance
Not every delivery term requires the seller to buy insurance. Businesses need to agree on: who buys the insurance, the level of insurance responsibility, the scope of insurance, the insurer, the process for handling a loss and more. Clarifying this from the outset limits disputes when a risk materializes.
6. Clearly Stipulate the Point of Risk Transfer
This is often misunderstood. For example:
- With FOB, risk transfers to the buyer once the goods are loaded onto the vessel.
- With EXW, risk transfers right at the seller's premises.
- With DAP, risk transfers when the goods are delivered to the agreed place, ready for unloading.
Correctly understanding the point of transfer helps a business determine responsibility when loss or damage occurs.
7. Note the Customs Regulations of the Importing Country
Some countries have special regulations on: import procedures, taxes, quarantine, quality inspection, import permits and more. Businesses should consider choosing a delivery term that matches their ability to carry out these procedures.
8. State the Incoterms Version Clearly in the Contract
Don't just write: FOB, CIF, DAP. You should state it in full, for example:
- FOB Hai Phong Port - Incoterms® 2020
- CIF Los Angeles - Incoterms® 2020
Stating the place and the applicable version clearly limits disputes over differing interpretations.
9. Anticipate Additional Costs
During international transport, the following may arise: container demurrage, detention, peak season surcharge, fuel surcharge, container imbalance surcharge, storage cost, inspection cost and more. Businesses need to clarify in the contract which party will bear these costs if they arise.
10. Work with a Freight Forwarder During Negotiation
A Freight Forwarder does more than support transport; it can also:
- Advise on choosing suitable Incoterms.
- Compare costs between delivery terms.
- Assess logistics risk.
- Support transport planning.
- Update the latest surcharges.
The involvement of an experienced logistics provider helps a business make more accurate decisions.
Common Mistakes When Negotiating Delivery Terms
- Focusing only on the selling price.
- Not clearly understanding Incoterms.
- Not calculating total logistics cost.
- Not clarifying responsibility for buying insurance.
- Not stipulating the point of risk transfer.
- Not clearly stating the place of delivery.
- Not stating the Incoterms® 2020 version in the contract.
These mistakes can lead to disputes and increase operating costs.
Secrets to Effective Negotiation
To negotiate the best possible delivery terms, businesses should:
- Prepare information thoroughly before the negotiation.
- Understand their own logistics capabilities.
- Compare several Incoterms options.
- Calculate total cost rather than looking only at the price of the goods.
- Plan for contingencies.
- Consult a Freight Forwarder or import-export expert.
Careful preparation helps a business feel more confident and reach a favorable agreement.
Conclusion
Negotiating delivery terms is one of the most important steps in an import-export transaction. A clearly built clause helps a business control logistics costs well, allocate responsibilities sensibly and minimize risk during international transport.
Rather than focusing only on the selling price, you should assess cost, delivery time, insurance responsibility, customs procedures and each party's capabilities comprehensively. At the same time, working with an experienced Freight Forwarder helps you choose suitable Incoterms. If you are facing difficulties with international import-export and are looking for a reputable, high-quality provider of turnkey import-export services, contact Embassy Freight now via Hotline: 0936 911 656 for the fastest consultation and quote!
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