Incoterms — short for International Commercial Terms — are a set of standard trade rules published by the International Chamber of Commerce. They define exactly where the seller’s responsibility ends and the buyer’s begins. Getting the term right protects you from unexpected costs and disputes.
What Incoterms do and don’t cover
Incoterms specify who arranges and pays for carriage, who handles export and import clearance, where risk transfers from seller to buyer, and who is responsible for insurance. They do not cover the price of the goods, payment terms or transfer of ownership — those belong in your sales contract.
The most common terms
- EXW (Ex Works): the buyer takes over at the seller’s door and handles everything after. Lowest seller obligation, highest buyer responsibility.
- FOB (Free On Board): the seller delivers the goods on board the vessel; risk passes once loaded. A long-standing favourite for ocean shipments.
- CIF (Cost, Insurance and Freight): the seller pays freight and minimum insurance to the destination port, but risk still passes at origin once loaded.
- DAP (Delivered At Place): the seller delivers to a named destination, ready for unloading; the buyer clears import.
- DDP (Delivered Duty Paid): the seller delivers fully cleared with duties paid — maximum seller obligation, simplest for the buyer.
Container vs vessel terms
A frequent mistake is using FOB or CIF for containerised cargo. Those terms were designed for goods loaded directly onto a vessel. For containers handed over at a terminal, the rules recommend FCA, CPT or CIP instead, because risk should transfer when the container is handed to the carrier — not at the ship’s rail.
How to choose the right term
Pick a term based on how much of the journey you want to control. New importers often prefer DAP or DDP so the supplier handles most of the logistics. Experienced traders may use FOB or FCA to control freight and choose their own forwarder, which usually lowers cost. Whatever you choose, name the exact place (for example “FCA Shanghai Port”) so there is no ambiguity.
Our team can recommend the most cost-effective Incoterm for your lane and handle every step it assigns to you. Reach out and we will walk through your contract before you sign.