Meaning
The variation in product unit prices that results from selecting different standard international commercial terms reflects the shift of logistics costs between buyer and seller. Analysis of the incoterms pricing impact reveals the financial difference between a price quoted at the factory door versus one quoted at the destination port. This pricing difference is governed by the allocation of freight, customs duty and insurance liabilities.
The pricing impact stops applying once the risk passes according to the selected term.
Cost Distribution
Each term in the rules allocates specific financial obligations to either the seller or the buyer. A quote under CIF includes ocean freight and marine insurance, whereas an FOB quote excludes these expenses. The incoterms pricing impact requires the buyer to calculate the total landed cost to determine which option is more economical.
In many cases, a buyer can leverage their own shipping contracts to secure lower freight rates than the seller.
Price Comparison
Procurement teams must normalize quotes from different suppliers by adjusting for the terms of sale. If one supplier quotes on a DDP basis and another on an FCA basis, a direct price comparison is impossible without adding the missing transport costs to the FCA quote. This normalization process reveals the true cost of goods.
Accurate comparison ensures that the procurement team makes decisions based on comparable financial data.
Contractual Liability
The contract of sale must align the pricing schedule with the chosen term to prevent double billing. Disputes arise when sellers include freight charges on the invoice that were already factored into the unit price. Clear documentation of the delivery term prevents these financial discrepancies.
