Advantages and Disadvantages of Incoterms

The single greatest advantage of using Incoterms is the standardization and specificity of complicated international trade aspects. Having a system that eliminates ambiguity between nations has made trading much simpler, especially when negotiating terms. This saves time and money that would have previously been spent on lawyers, who would draft terms basically breaking down Incoterms into different languages.

A notable disadvantage of Incoterms is that buyers and sellers often have different preferences when using them. Sellers, for example, may choose CIF because they understand their shipments better than buyers do. Buyers, in contrast, may prefer FOB for the same reasons. However, the terms themselves are not the issue, and it becomes more a matter of negotiation over which terms to use vs. the clarity of the terms themselves.

Pros

• Easily understood terms
• International standardization
• Updated and clarified by an international body (ICC)

Cons

• Differences between buyer and seller preferences when choosing terms
• Certain terms can expose one party to inflated costs

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