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INCOTERMS - DESCRIPTION

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The Incoterms (International Commercial Terms) are a set of standardised terms used in international trade to establish responsibilities and costs between buyer and seller in a sales transaction.

Each Incoterm clearly defines who must bear the costs and responsibilities for the transport of the goods from the place of origin to their final destination. It also sets out the obligations regarding loading, insurance, customs and necessary documents.

Some of the most common Incoterms are briefly described below.

  • EXW (Ex Works): the seller makes the goods available to the buyer at his premises or factory. The buyer bears the transport, costs and risks from that moment onwards.
  • FOB (Free on Board): the seller delivers the goods to the carrier nominated by the buyer at the port of origin. The seller is responsible for the costs and risks until the goods are loaded on board the ship.
  • CIF (Cost, Insurance and Freight): the seller is responsible for the transport and insurance of the goods to the port of destination designated by the buyer. The seller is responsible for the costs and risks until the goods are delivered on board the ship.
  • DDP (Delivered Duty Paid): the seller bears all costs and formalities necessary to deliver the goods to the place designated by the buyer, including transport, insurance and customs formalities. The buyer only has to take delivery of the goods at the agreed place.

It is important that the parties involved in an international trade transaction are aware of the Incoterms and agree on which Incoterms will apply to their transaction, as this can have significant cost, liability and risk implications.

How can Artificial Intelligence (AI) help entrepreneurs to select the incoterms that best suit their internationalisation?

As a language model, the ChatGPT can help an entrepreneur to select the most suitable Incoterm for internationalisation by providing information and guidance on available trade terms. To do so, the entrepreneur should provide information on the type of product or service he/she wants to export, the markets he/she is targeting and the costs and risks he/she is willing to assume.

Based on this information, the ChatGPT could provide recommendations on the Incoterm that best suits the entrepreneur's needs, explaining in detail the implications and responsibilities of each commercial term, as well as the costs and risks associated with each of them.

In addition, the ChatGPT also could provide information on the customs regulations and rules that apply to each commercial term in different markets, which may be useful for the entrepreneur to make an informed decision.

In general, ChatGPT can help an entrepreneur to select the most suitable Incoterm for his internationalisation by providing objective information and guidance based on the data provided by the entrepreneur.

However, it is important to keep in mind that ChatGPT cannot replace the expertise and specialised knowledge of a trade advisor or an international logistics expert. Therefore, it is always advisable to seek professional advice to ensure informed and accurate decision-making.

HERE ARE SOME PRACTICAL EXAMPLES OF HOW CHATGPT CAN HELP AN ENTREPRENEUR TO SELECT THE INCOTERMS THAT ARE MOST RELEVANT TO HIS INTERNATIONALISATION:

  1. A Spanish company that exports products to EU countries, but has problems selecting the right Incoterm, can ask Artificial Intelligence (AI) which Incoterm is most suitable in each situation, depending on the destination of its products, transport, insurance and costs.
  2. A US company that wants to import goods from China, but is not familiar with Incoterms, can ask Artificial Intelligence (AI) what is the best Incoterm for its situation, taking into account transport, insurance and costs, and how it can negotiate with its Chinese supplier.
  3. A small company in Mexico that wants to sell its products to a customer in Brazil, but does not know which Incoterm to use, can ask Artificial Intelligence (AI) which Incoterm suits it best, how to negotiate with its Brazilian customer and which costs to assume in each situation.

In general, Artificial Intelligence (AI) can help entrepreneurs understand Incoterms and how they affect their international business operations, offering them a useful and practical guide to select the most appropriate Incoterm in each situation.

INCOTERMS ("INternational COmmercial TERMS"). These are three-letter terms that reflect the rules that each party voluntarily accepts when entering into an international contract for the sale of goods and that relate to the carriage and delivery of goods..

They are used to determine which party bears which costs in the carriage of goods. Throughout history, these terms have been revised, with the latest version still in force:

The incoterms are as follows:

  • E" TERMS

EXW. It has to do with a direct outbound delivery of the product.

  • F" TERMS

FCA, FAS, FOB. They concern an indirect delivery by the seller, the buyer in this case bears the costs for the main transport of the product.

  • C" TERMS

CFR, CIF, CPT, CIP.  They relate to an indirect delivery of the goods, where the seller is also responsible for the main transport of the goods.

  • TTERMS WITH "D":

DAT, DAP, DDPThe "direct deliveries" are direct deliveries, where the seller bears the cost of bringing the goods to the point of destination.

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