Why It Matters
Incoterms are the language of international trade. They define who pays for what and who bears risk when. A misunderstanding can lead to hidden costs, legal disputes, and major headaches for both the buyer and the seller.
Common Terms in Plain English
Here’s a quick guide to some of the most frequently used Incoterms, explained simply:
- EXW (Ex Works): The buyer takes on almost all responsibility from the seller’s doorstep. The seller’s only duty is to make the goods available at their location.
- FOB (Free on Board): The seller handles all costs and risks until the goods are loaded onto the vessel at the port of shipment. From that point on, the buyer takes over. This is primarily for sea and inland waterway transport.
- CIF (Cost, Insurance, and Freight): The seller pays for the main carriage and minimum insurance to the named port of destination, but the risk transfers to the buyer as soon as the goods are loaded onto the vessel.
- DAP (Delivered at Place) / DDP (Delivered Duty Paid): The seller handles delivery all the way to the buyer’s specified location. With DDP, the seller also pays for import taxes and duties, offering the most convenience to the buyer.
Selection Tips
Choosing the right Incoterm is a strategic decision. Consider these tips:
- Match the term to your capabilities at the origin and destination. Can you effectively manage trucking and customs at the other end?
- For first-time importers, avoid DDP unless you have a strong local partner who can manage the complex customs clearance process.
- Ensure the terms you choose align with your financing arrangements and insurance coverage needs.
UTradeShipping Support
We don’t just move your cargo—we guide your decisions. We review your purchase orders and suggest terms that fit your risk appetite, cash cycle, and control needs, helping you avoid costly mistakes.
