What Are Incoterms?

Key Takeaways

• Incoterms are internationally standardised trade terms defining responsibility for freight, insurance, and risk.
• FOB means risk transfers when goods are loaded at the origin port.
• DDP means the seller handles everything including duty — the buyer receives goods cleared at their door.

What Incoterms are

Incoterms (International Commercial Terms) are a set of standardised trade terms published by the International Chamber of Commerce. They define exactly where responsibility for a shipment transfers from seller to buyer — including who pays for freight and insurance, and who bears the risk if goods are lost or damaged in transit.

The most common terms

EXW (Ex Works): seller makes goods available at their factory; buyer arranges and pays for everything. FOB (Free On Board): seller loads goods onto the ship; risk transfers at that point. CIF (Cost, Insurance, Freight): seller pays for freight and insurance to destination port; risk transfers when goods are loaded. DDP (Delivered Duty Paid): seller handles everything including import duty — buyer receives goods cleared at destination.

Why they matter for buyers

If you buy on EXW terms, you are responsible for collecting from the factory, arranging export clearance, international freight, insurance, import clearance, and final delivery. If you buy on DDP, you simply receive goods at your warehouse and pay one price. The difference in risk and administration is enormous — so is the ability to control costs.

The FOB vs DDP choice

Many importers prefer FOB because they can shop around for their own freight and often get better rates than the seller's embedded logistics costs. DDP is simpler but you're paying the seller's logistics margin. For new importers, DDP reduces complexity. For experienced importers with established freight forwarder relationships, FOB typically saves money.

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