How to save money on INCO terms

July 22, 2024 /

Saving money on Incoterms involves strategically selecting the terms that best align with your logistical capabilities, negotiating effectively with suppliers or buyers, and optimizing your supply chain processes. Here are several strategies to help you save money:


1. Choose the Right Incoterms

  • Evaluate Your Capabilities: Choose Incoterms that match your logistical strengths. If you have a robust logistics network, opting for terms where you control the majority of the transportation (e.g., FOB or EXW) can be cost-effective.
  • Consider Total Costs: Look beyond the base price of goods and consider all costs, including shipping, insurance, and handling. For example, while CIF might seem cheaper initially, DAP could save money overall by providing a clearer understanding of total landed costs.
  • Leverage Economies of Scale: Larger shipments might benefit from terms like CFR or CIF, where the seller arranges transportation, potentially accessing bulk shipping rates.


2. Negotiate Effectively

  • Understand Both Parties' Needs: Effective negotiation involves understanding both your needs and those of your trading partner. Propose Incoterms that can provide mutual benefits.
  • Volume Discounts: When negotiating with suppliers, commit to higher volumes to gain better rates on logistics and shipping costs included in the Incoterms.


3. Optimize Supply Chain Processes

  • Efficient Warehousing: If using terms like EXW or FOB, optimize your warehousing to reduce storage costs and improve handling efficiency.
  • Consolidate Shipments: Consolidating shipments can reduce per-unit shipping costs. For example, consolidating multiple smaller shipments into a single FCL (Full Container Load) can be more cost-effective than multiple LCL (Less than Container Load) shipments.
  • Select Reliable Carriers: Working with reliable carriers can prevent delays and extra costs. For terms where you control the transportation (like FOB or CIF), choosing reputable carriers can minimize risks.


4. Leverage Technology

  • Digital Freight Platforms: Use digital platforms to compare rates and services from different logistics providers, helping you choose the most cost-effective options.
  • Track Shipments: Real-time tracking and inventory management systems can reduce costs associated with lost or delayed shipments.


5. Risk Management

  • Insurance Optimization: For terms where you arrange insurance (e.g., CIP or CIF), compare insurance providers to find the best rates and coverage.
  • Minimize Risks: Choosing Incoterms that allocate fewer risks to you can prevent unexpected costs. For instance, terms like DDP place more responsibility on the seller, which can minimize your risk exposure.


Examples of Cost-Effective Incoterms Strategies

  • EXW (Ex Works): Best for buyers with strong logistics capabilities who can manage and optimize the entire transport process themselves.
  • FOB (Free on Board): Ideal for buyers who want control over the main carriage but do not want to handle export formalities.
  • DAP (Delivered at Place): Suitable for buyers who prefer knowing the total cost to their destination without handling the main carriage logistics.


Conclusion

Choosing the right Incoterms and implementing strategies to optimize logistics can significantly reduce costs in international trade. Understanding your strengths, negotiating effectively, leveraging technology, and managing risks are crucial steps in saving money with Incoterms.

For more detailed information on Incoterms and their implications, you can refer to resources like:

  • International Chamber of Commerce (ICC)
  • Trade Finance Global
  • Export.gov

Please contact us for advice or further information or visit our website.