Incoterms are internationally recognized trade rules created by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international trade, including shipping, insurance, and customs duties. Understanding Incoterms helps SMEs in Bangladesh trade confidently, reduce risk, and avoid disputes. Many new exporters face confusion over who pays for what and where risk transfers. This guide explains the main Incoterms step by step in simple language.
Step 1: What Are Incoterms?
• Standardized rules for international trade
• Clarify buyer and seller responsibilities
• Specify transport costs, insurance, and risk transfer
• Reduce confusion and disputes in international trade
Step 2: Common Incoterms for SMEs
1. EXW (Ex Works)
• Seller’s responsibility ends at their premises
• Buyer pays for transport, export, and import costs
• Buyer bears all risk after goods leave seller
2. FOB (Free on Board)
• Seller delivers goods on board at the shipping port
• Seller handles export customs clearance
• Buyer pays for freight, insurance, and import costs
3. CIF (Cost, Insurance, and Freight)
• Seller pays for goods, shipping, and insurance to the destination port
• Risk transfers to buyer when goods are loaded onto the ship
• Buyer handles import clearance
4. DAP (Delivered at Place)
• Seller delivers goods to an agreed place in the buyer’s country
• Seller pays transport costs up to that place
• Buyer handles import duties and customs
Step 3: Choosing the Right Incoterm
• Consider your export experience and capacity
• Discuss responsibilities with the buyer clearly
• Select terms that reduce risk and simplify trade
• Use Incoterms that match your business scale and logistics setup
Step 4: Risks and Costs to Know
• EXW saves seller money but increases buyer responsibility
• CIF reduces buyer risk but seller pays more for insurance and freight
• FOB gives buyers control over shipping
• Incorrect use can lead to financial loss or shipment delays
Current Situation for SMEs in Bangladesh
• SMEs are increasingly entering global trade
• Bangladesh government supports export-oriented SMEs through training and financing
• SMEs can now access digital platforms and online tools to manage shipping and Incoterms
• Growing demand for Bangladeshi garments, handicrafts, leather, and food products
• Understanding Incoterms helps SMEs compete effectively with larger exporters
Common Challenges Faced by SMEs
• Misunderstanding responsibilities of buyer and seller
• Choosing wrong Incoterm for shipment
• Extra costs due to miscalculated insurance or freight
• Delays at customs or with transport
Helpful Resources for SMEs
• International Chamber of Commerce (ICC) – Incoterms rules: https://iccwbo.org/resources-for-business/incoterms-rules/
• Export Promotion Bureau (EPB), Bangladesh: https://epb.gov.bd/
• SME Foundation: https://smef.gov.bd/
• Bangladesh Bank SME Support: https://bb.org.bd/en/index.php/sme
Final Advice for SME Exporters
• Always include agreed Incoterm in export contracts
• Clearly understand who pays for transport, insurance, and customs
• Seek guidance from trade experts or SME Foundation if unsure
• Keep records of all agreements and transactions
• Select terms that reduce risk and support smooth international trade
Correct use of Incoterms allows SMEs in Bangladesh to trade globally with confidence, avoid disputes, and ensure timely delivery of goods.