Understanding Incoterms and a quick way to remember the difference

What are incoterms?
Incoterms are trade codes that are a three-digit-code to determine who pays costs of delivery and at what point the buyer or seller is responsible for the goods being delivered.

If you get it wrong and it could be a costly error for you and your brand. This is mainly used for shipping over water (although can be used for air freight), there are eleven codes but the two most common shipping terms I used when asking for quotes from the factory were FOB and CIF.

FOB which means Free on board or Freight on board which means once the lingerie from the factory is on the ship it’s your responsibility and cost to get it delivered to where you are.

CIF means Cost Freight and Insurance, which means that they deal with ensuring that it reaches you. Obviously there is a big difference in the price.

I once had the Incoterms explained to me when it was my turn to do the coffee run and it made more sense, so I’ll save you getting me a coffee and just explain it.

So let’s say a coffee shop is across a busy road from my office.

FOB

If I rang up and order a coffee and went to collect it I would be responsible for its collection and return to my office. If I spilt it, I wouldn’t get a refund of it being less than I ordered. If I took the long walk back to avoid the busy road and it went cold I wouldn’t be able to complain that the quality wasn’t right. The coffee job did their job making a coffee to how I ordered and they were paid for exactly how I asked. If they free styled my order and added 3 sugars to my order - they got it wrong and at that point I could refuse my order and ask them for a new coffee made how I asked. They are responsible for everything until it leaves their premises then I am responsible for that coffee.

CIF

If I rang up my coffee shop and placed an order but then paid extra for them to deliver it to the lobby of my office as they are bulk delivering a big order of coffees - they are then responsible for my order. If the guy delivering my order trips and spills it all, its up to him to sort my order out and provide me with a new coffee. It;s his responsibility to let me know what time he’ll be delivering so I can meet them in the lobby to get my coffee (I then have responsibility of my coffee to take it back to my office). Anything that happens to my coffee before I greet them in the lobby is their responsibility.

If in doubt confirm with your factory who is providing the quote.

*Image below is the page from “how to be a lingerie designer” showing Incoterms in a table.

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