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Strategic Considerations for Compliance to Incoterms

There are several considerations for adopting Incoterms in supply agreements that can have a strategic impact to an organisation. These can include the envisaged mode and method of transport, as well as both parties’ knowledge of how to move products and get customs clearance. They also need to consider the type and quantity of commodities to be procured, insurance coverage for the specific project and whether the products can be combined with other orders being purchased at or delivered to a comparable place. This article discusses the key strategic considerations for adopting Incoterms in contractual agreements.

The Need for Forwarding Agent

A freight forwarder is an individual or more likely a company who arranges for the transportation of goods from one location to another. A freight forwarder’s primary responsibility is to organize the transportation logistics associated with the shipment and be responsible for all customs clearance paperwork. In most cases, when a buyer uses a freight forwarder, the buyer will agree on a quote for the entire end-to-end process of moving the shipment from its origin to the final store or warehouse. That means the costs would make up about 20 different components on average. Transport costs may be calculated based on cargo weight, volume, or both. Costs of documentation, including export and import paperwork. Palletization or packing will depend on the nature of items to be shipped, whether there is a need for the items to be placed on pallets before being loaded into a container, or they may need to be packed for air freight.

The Need for Trade Financing

Trade finance refers to the financial products and instruments used by businesses to facilitate international trade and commerce. This enables and facilitates importers and exporters to conduct business through trade. By reconciling an exporter’s and importer’s divergent needs, trade finance can help reduce the risk associated with global trade. Trade finance provides receivables or payment to the exporter in accordance with the agreement, while the importer may be extended credit to fulfil the trade order. The parties involved in trade finance are numerous and can include as follows banks, trade finance companies, importer and exporters, insurers, export credit agencies and service providers. A few of the financial instruments used in trade finance are Banks can provide lending lines of credit to both importers and exporters. Factoring is the practice of receiving payment based on a percentage of a company’s receivables. Exporters can be provided with export credit or working capital.

Multimodal Transportation

Multimodal transport is the combination of various modes of transportation to facilitate cargo movement, that is, to make it faster and more efficient. When it comes to this mode of transportation, more than one type of vehicle is required to transport the goods to their destination, such as trucks, trains, ships, airplanes, or some other mode of transportation. The advantage of Multimodal Transport lies in the most efficient combination of multiple modes of transportation, while optimizing deadlines, reducing inventory costs, and thus keeping merchandise costs under control. The combination of these results in high environmental sustainability, as Multimodal Transport reduces transportation’s environmental footprint. It may incur additional costs due to the use of modal interfaces, such as trans-shipments, handling, and so on. However, a company can hire a Freight Forwarding Company to act as an intermediary between the various modes of transportation, without involving the importer or exporter in the transaction.

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Gajendran Rozer Benny, GDLSCM
Gajendran Rozer Benny has substantive years of experiences in warehousing and logistics operations, and specifically in the fitness industry. Heis a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). Benny is completing Graduate Diploma in Procurement and Supply Chain Management ​(GDLSCM) on January 2022 at SIPMM Institute.


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