Incoterms: Know the Risks in Supply Chain Industry

I was discussing risk management in one of my management training courses. The generic risk breakdown structure (RBS) discussion became really engaging when a few members said when procurement is involved, risks are low. I reasoned that the opposite is true, and we discussed about the contractor's extent of liabilities when I mentioned about Incoterms discussing who is responsible for what in the supply chain industry bringing up the major blockade that happened around March 2021 when a freight liner blocked Suez Canal. No one had heard about Incoterms (International Trade Administration, n.d.) and the 11 modes of transportation considerations when manufactured or other types of goods are transported from the factory to the buyer's warehouse.

Incoterms is a set of internationally recognized terms indicating the responsibilities of buyers and sellers in transactions involved in the supply chain. Usually, these types of transactions involve exporting physical products. These Incoterms are published once in 10 years and the last 9th edition updates were published in the year 2020. While I am not an expert in these Incoterms, I have spent time understanding them as part of my never-ending interest in the field of risk management. The following is my interpretation of the Incoterms 2020 depicted to demonstrate the transfer of risk and the obligations of seller and buyer.

Disclaimer: The above diagram is Dr. Rajagopalan's interpretation.

Given below are some brief descriptions of these terms and interpretation of liabilities.

Mode	Code	Description	Explanation
Any	EXW	Ex Works	Risk passes on taking in charge by buyer. The seller not obliged to load goods onto the vehicle. Buyer must clear for export.
Any	FCA	Free Carrier	Risk passes on taking charge by carrier. If at seller's premises, seller must load onto vehicle. If other place, seller delivers on vehicle and seller must clear for export.
Marine	FAS	Free Along Ship	Seller delivers alongside ship, where risk passes.
Marine	FOB	Free On Board	Seller must load on board ship, where risk passes.
Any	CPT	Carriage Paid To	Risk passes on taking in charge by carrier; buyer should enquire about terminal handling charges and arrange for insurance from the point the career takes on.
Any	CIP	Carriage and Insured Paid To	Risk passes on taking in charge by carrier. Seller must insure goods.
Marine	CFR	Cost and Freight	Seller must load on board ship, where risk passes.
Marine	CIF	Cost Insured and Freight	Seller must load on board ship, where risk passes. Seller must insure goods.
Any	DAP	Delivered At Place	Delivered loaded from arriving conveyance.
Any	DAT	Delivered At Terminal	Delivered unloaded from arriving conveyance.
Any	DDP	Delivered Duty Paid	Delivered still loaded on arriving conveyance, cleared for import, duty paid.

References

International Trade Administration (n.d.) Know Your Incoterms.