What Are Incoterms?

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 trade transactions — specifically who pays for shipping, insurance, and customs, and where the risk transfers from seller to buyer.

Using the wrong Incoterm can cost your business thousands of dollars per shipment. Understanding them is essential for any business involved in international trade.

EXW — Ex Works

Best for: Experienced buyers who want maximum control

Under EXW, the seller makes goods available at their premises. The buyer is responsible for ALL transportation, insurance, export clearance, and customs from that point forward.

  • Seller risk: Minimal — risk transfers at factory gate
  • Buyer risk: Maximum — responsible for everything
  • Best when: Buyer has strong logistics network and wants cost control

FOB — Free On Board

Best for: Most ocean freight transactions

Under FOB, the seller is responsible for getting the goods to the named port and loaded onto the ship. Risk transfers to the buyer once goods are on board.

  • Seller handles: Export clearance, transport to port, loading
  • Buyer handles: Ocean freight, insurance, import clearance
  • Best when: Buyer has preferred freight forwarder and wants to control shipping costs
FOB is the most commonly used Incoterm in global manufacturing trade — it provides a clear, fair division of responsibility between buyer and seller.

CIF — Cost, Insurance and Freight

Best for: Buyers new to importing

Under CIF, the seller arranges and pays for ocean freight and insurance to the destination port. Risk, however, still transfers to the buyer once goods are loaded — same as FOB.

  • Seller handles: Export clearance, freight, minimum insurance
  • Buyer handles: Import clearance, final delivery
  • Best when: Buyer wants simplicity and seller has good freight rates

DDP — Delivered Duty Paid

Best for: Buyers who want zero complexity

DDP is the maximum obligation for the seller. The seller handles everything — export, freight, insurance, import customs, and delivery to the buyer's door. Risk transfers only at delivery.

  • Seller handles: Absolutely everything
  • Buyer handles: Nothing except receiving goods
  • Best when: Buyer has no import experience or wants a fully landed cost

Which Incoterm Should You Use?

The right Incoterm depends on your experience, logistics relationships, and risk tolerance:

  • New to importing? Use CIF or DDP
  • Experienced importer? Use FOB for best cost control
  • Buying locally for export? Use EXW
  • Selling to inexperienced buyers? Offer DDP as premium service