With tariffs reshaping the global trade landscape, businesses are grappling with critical questions about responsibility, compliance and cost-sharing. Nicole Bivens Collinson, managing principal at Sandler, Travis & Rosenberg, P.A., offers candid insights into how Incoterms like FOB, DDP and CIF are evolving, how companies are adjusting their risk tolerance and the ways tariffs are complicating buyer-supplier relationships.
In this Q&A, she dives deep into the driving forces behind current trends, potential risks and the broader implications of unpredictable trade policies.
HGI: What was international trade like before these recent tariffs? What was trending?
NBC: Before the tariffs, there was no set trend towards one Incoterm [International Commercial Term] over another. It really depended on the risk tolerance or responsibility tolerance of a company.
For example, if you wanted to ensure that you had some control over the goods and that they were yours as soon as they were loaded, you would secure FOB [Free On Board]. You would also then be responsible for the duties and compliance with CBP [U.S. Customs and Border Protection] and USG [U.S. Government] agency requirements. Many companies wanted to ensure they were compliant with the USG regulations to prevent redelivery notices or other problems with their entries of goods. The key was to ensure the goods were lawfully entered for delivery purposes.
DDP [Delivered Duty Paid] terms were used sometimes because U.S. companies did not want to have to carry the burden and the expense of ensuring the shipments fully complied with USG requirements and just wanted to have the goods delivered to them.
HGI: And what about now?
NBC: With the increase in tariffs, more companies are exploring the DDP and related incoterms because they then do not have to worry about ‘additional costs’ upon import if the tariff were to change while the goods were on the water. They can negotiate static terms with the supplier and the supplier has to ensure all the USG regulations are met.
We are seeing, however, some interesting variations on these terms because the vendor doesn’t want to have to bear the burden of the increased tariffs solely. Also, because some suppliers may be tempted to use “creative” invoicing to reduce duty liability, some importers would rather bury their heads in the sand and let the supplier be the importer of record and responsible for any “creativity” overreach.
[But again,] if Importers want to ensure that they have more control over compliance with USG laws, they may choose to use CIF or FOB.
“We are seeing more companies move towards a DDP-type environment and let the seller be the importer of record.”
—Nicole Bivens Collinson, Sandler, Travis & Rosenberg, P.A.
HGI: How do terms that place more responsibility on the seller impact things such as working capital upstream?
NBC: I think the entity that is responsible for paying duties is the one that will be most impacted with respect to working capital. Only under DDP is the seller responsible for clearing U.S. customs and paying the duties. All the other terms put the onus of customs clearance and duty payment on the buyer.
HGI: How has the tariff threat changed or accelerated the previous trend?
NBC: We are seeing more companies move towards a DDP-type environment and let the seller be the importer of record. However, the U.S. is starting to look at whether it continues to allow foreign or non-resident importers of record as they currently do.
Some in Congress for example, do not think any foreign entities should be allowed to act as the importer of record because CBP and other agencies cannot always take enforcement actions against them. Some want to only allow NRI [non-resident importers] to those countries that allow it for the U.S. (for example, Canada)—the concept of reciprocity. We may see some changes with the NRI under the current administration.
HGI: What do sellers (factories) and buyers (retailers) need to be aware of under these current conditions? What are the risks?
NBC: The risks for the buyer and seller are the level of taxes/tariffs they will have to pay which seems to change more frequently now. This environment causes someone to have to pay more. While it may be the IOR that has to pay more in the first instance, one can trust that the buyer will push back on the seller next order to either shoulder the additional costs or to share those costs. So, both entities, buyer and seller, are exposed to unanticipated additional costs.
HGI: How is the on-again/off-again nature of the tariffs complicating the buyer/seller relationship?
NBC: The tariff yo-yo is causing a lot of confusion and consternation between the sellers and buyers. Who is going to carry the burden of the tariffs despite the terms of sale originally? If the seller refuses to share in the cost of surprise tariffs, the buyer is likely to find another supplier. But suppliers still need to make a profit. So, the on/off tariffs can cause rifts between buyers and sellers.
