Incoterms and Risk Management
Understanding risk transfer points and implementing appropriate risk management strategies is crucial when using Incoterms in international trade transactions.
Risk Transfer Points
EXW (Ex Works)
Under EXW:
- Risk transfers at seller's premises
- Buyer bears all risks from collection
- Seller's minimum obligation
- Buyer's maximum risk
FOB (Free on Board)
Under FOB:
- Risk transfers when goods pass ship's rail
- Seller bears risks until loading
- Buyer bears risks during transit
- Common for maritime transport
DDP (Delivered Duty Paid)
Under DDP:
- Risk transfers at destination
- Seller bears all risks until delivery
- Seller's maximum obligation
- Buyer's minimum risk
Risk Management Strategies
- Appropriate insurance coverage
- Quality control measures
- Documentation requirements
- Payment terms alignment
- Transportation planning
Key Considerations
- Mode of transport
- Distance and duration
- Nature of goods
- Country-specific risks
- Insurance requirements
Best Practices
- Clear risk allocation
- Comprehensive insurance
- Proper documentation
- Regular risk assessment
- Contingency planning