Why Companies Need a Robust Incoterms Management Process

Since 1936, Incoterms rules have supported the growth of international trade and the creation of global supply chains. These standardized transaction guidelines, recognized by companies worldwide, eliminate uncertainty from international purchases by allocating trade expenses, transportation responsibilities, and logistics tasks to buyers and sellers. 

A comprehensive understanding of each shipment’s Incoterms helps internal supply chain teams, carriers, and freight audit companies apply the appropriate costs and limit risk. However, managing these obligations—which involve broad scope responsibilities and many stakeholders—is more complex than it sounds. 

Given today’s labor shortages and port bottlenecks, companies need a standardized process for defining, transmitting, and executing each shipment’s Incoterms. Companies can streamline supply chains and ensure they pay the appropriate costs for every shipment using a comprehensive management system.

Mitigate the consequences of disordered Incoterms management

With an established framework for international sales, companies can buy materials and dispatch goods to customers with confidence. Incoterms rules define a comprehensive set of buyer and seller responsibilities involved in commercial transactions, including:

  • Completing shipment packing, pick-up, or delivery
  • Ensuring proper documentation
  • Facilitating pre-shipment inspections
  • Paying duties and taxes
  • Applying for export and import licenses
  • Obtaining insurance policies

Without an organized system for monitoring Incoterms, companies might lose track of transportation costs and the pick-up or end destinations of shipments. Even supply chain managers can be unsure of shipping responsibilities.

To stay on top of new and ongoing obligations, companies need a standardized process for defining and sharing Incoterms—or risk facing severe legal and logistical consequences. A lack of proper knowledge can result in various ramifications, from unexpected delays to liability for high-value cargo damages.

Understand Incoterms obligations and keep shipments moving

Companies looking to avoid surprise costs and legal backlash must standardize the Incoterms management process, beginning with purchase order negotiations. With standardization, workflows look the same for every Incoterms rule and transportation mode. 

First, companies must understand the Incoterms for a particular agreement and define them in negotiations with suppliers or buyers. Next, they should transmit this information to all parties involved, including internal finance and logistics teams, external freight audit companies, and carriers. Keeping all stakeholders informed ensures that companies only pay required freight costs.

There are two ways companies can ensure cohesive Incoterms management—so they always know what they owe and keep every stakeholder informed.

  1. Freight audit services

With a freight audit service, Incoterms are incorporated into standard business processes from the start of purchase agreements. After the freight company defines a transaction’s Incoterms, the freight audit provider will audit the terms and report the cost implications for the client to share internally.

Providers can validate and store the Incoterms for any given agreement. Then, it can use the stored obligations to ensure only the costs applicable to the business are applied to freight carrier invoices, facilitating accurate billing and an efficient management process.

  1. A transportation management system (TMS) overhaul

A TMS automates shipping workflows and centralizes real-time supply chain data. Using a TMS, teams can ensure that Incoterms become part of regular shipment execution: they can store defined Incoterms, and then share this information with carriers and other stakeholders to execute. It will outline expenses based on Incoterms obligations, so companies only pay these understood costs.

Position companies for increased sales volumes 

Each transaction comes with new obligations, and these tasks quickly accumulate with increased purchases and sales. As companies scale, they need reliable, standardized processes to manage growing sales volumes without exposing themselves to unexpected costs. 

CTSI-Global’s Freight Audit Services gives companies of all sizes the comfort of knowing exactly what they’re paying and the customized support to handle any new obligations. With over 400 years of combined experience, our audit team will analyze carrier contracts, Incoterms, invoices, and shipping data—so companies can stay informed and on budget.

Widen profit margins without losing track of obligations. Contact CTSI-Global today.