When you’re involved in international trade, shipping a product isn’t just about moving it from point A to point B. It’s also about who pays for what, who bears the risk, and where customs clearance happens. That’s where Incotermscome in — international rules that protect both sellers and buyers.
📌 What are Incoterms?
Incoterms (International Commercial Terms) are a set of standardized international delivery terms that define:
who pays for transportation, insurance, duties,
where the risk transfers from seller to buyer,
who is responsible for customs clearance.
They’re not laws but are widely used worldwide. Created by the International Chamber of Commerce (ICC), the latest version is Incoterms 2020.
🧭 Why are Incoterms important?
Prevent disputes between parties
Clarify costs and risks upfront
Simplify legal and logistics processes
Standardize contract conditions
🛳️ 11 Incoterms 2020 Rules — in Simple Words
🔹 Group 1: For Any Mode of Transport
| Term | Who pays for transport? | Where does risk transfer? |
|---|---|---|
| EXW (Ex Works) | Buyer | At seller’s premises |
| FCA (Free Carrier) | Buyer | When handed to carrier |
| CPT (Carriage Paid To) | Seller | When handed to carrier |
| CIP (Carriage & Insurance Paid To) | Seller | When handed to carrier |
| DAP (Delivered At Place) | Seller | At buyer’s country, before unloading |
| DPU (Delivered at Place Unloaded) | Seller | After unloading at place |
| DDP (Delivered Duty Paid) | Seller | After customs cleared for buyer |
🔹 Group 2: For Sea Transport Only
| Term | Who pays for transport? | Where does risk transfer? |
|---|---|---|
| FAS (Free Alongside Ship) | Buyer | Alongside ship |
| FOB (Free On Board) | Buyer | After loading on vessel |
| CFR (Cost and Freight) | Seller | After loading |
| CIF (Cost, Insurance, Freight) | Seller | After loading, insurance required |
🧠 Interesting Facts About Incoterms
📅 Incoterms have existed since 1936 and are updated roughly every 10 years.
📦 The most popular terms worldwide are FOB, EXW, DDP, FCA.
❗ Some companies still use outdated versions (e.g., Incoterms 2000), which may create risks.
🌍 The same term may have different implications depending on local laws.
💼 Real-Life Example: How an Incoterms Error Cost $3,000
A company ordered goods under CIF, thinking the seller would deliver “to the door.”
But under CIF the seller’s obligation ended at the port of arrival.
The buyer had to pay demurrage, find a broker and arrange inland transport, losing three days and about $3,000.
❗ Lesson: Always double-check what’s behind the abbreviation.
🛡️ How We Use Incoterms at ST Forward
We help clients choose the right Incoterm for their shipment
We explain risk vs savings clearly
We recommend optimal terms (e.g., EXW → FCA → DAP)
We support clients from contract to customs and delivery
📩 Not sure which Incoterm to choose?
Contact us — we’ll help you pick the best delivery term for your case.
