Incoterms
International rules defining buyer/seller responsibilities in trade.
Definition
Incoterms (International Commercial Terms) are a set of standardized trade terms published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international transactions, specifying who pays for shipping, insurance, customs, and when risk transfers. Common terms include EXW (Ex Works), FOB (Free on Board), CIF (Cost, Insurance, and Freight), and DDP (Delivered Duty Paid). The current version is Incoterms 2020.
Why It Matters
Incoterms affect shipping costs and responsibilities. Under EXW, the buyer handles everything from the seller's door. Under DDP, the seller delivers to the buyer's door with duties paid. Understanding Incoterms helps you negotiate contracts, allocate costs correctly, and avoid disputes about who pays for what.
Example
Under FOB Shanghai, the seller delivers goods to the ship in Shanghai. The buyer arranges ocean freight, insurance, and import customs. Under CIF New York, the seller pays for freight and insurance to New York, but the buyer handles import duties.
Related Terms
Frequently Asked Questions
Which Incoterm should I use?
It depends on your experience and preferences. Beginners often prefer DDP (seller handles everything). Experienced importers may prefer FOB to control shipping costs. Consider your logistics capabilities and risk tolerance.
Do Incoterms affect duties and taxes?
Incoterms determine who pays duties, not how much is owed. Under DDP, the seller pays duties. Under other terms, the buyer typically handles import duties and taxes.