Freight & Shipping
Incoterms Explained for Importers & Exporters
Incoterms decide who pays for what, and who carries the risk, at every stage of an international shipment. Misreading them is how importers end up with surprise costs at the port. Here’s a plain-English guide to the ones that matter most.
What Incoterms are
Incoterms — International Commercial Terms, published by the ICC — are a standard set of three-letter rules that define the responsibilities of buyer and seller in a sale of goods: who arranges and pays for transport, who handles export and import clearance, and exactly where risk passes from one party to the other.
Why they matter for your landed cost
The Incoterm on your invoice determines which costs are already included in the price and which you’ll pay on top — freight, insurance, duties, clearance. Agree the wrong term and you can be liable for charges, or for loss and damage, that you assumed were the other party’s problem.
The terms importers see most
A handful come up constantly. EXW (Ex Works) puts almost everything on the buyer. FOB (Free On Board) passes risk once goods are loaded at the origin port. CIF (Cost, Insurance and Freight) has the seller cover freight and insurance to the destination port. DAP (Delivered At Place) and DDP (Delivered Duty Paid) push delivery, and in DDP the duties too, onto the seller.
Quick reference
Common Incoterms 2020
• EXW — buyer handles almost everything from the seller’s door
• FOB — risk passes when goods are loaded at origin port
• CIF — seller pays freight + insurance to destination port
• DAP — seller delivers to your premises, you clear & pay duty
• DDP — seller delivers and pays duties too
Where risk passes — the part people miss
Incoterms separate cost from risk, and the two don’t always transfer at the same point. Under FOB, for example, the buyer carries the risk from the moment goods are loaded at origin — even though the goods are nowhere near them. Knowing exactly where risk passes is what tells you when you need insurance in place.
Choosing the right term
The best Incoterm depends on who’s better placed to manage each leg. New importers often prefer terms where the seller handles more, but that can mean less control and hidden margin. We help clients pick terms that balance control, cost and risk — and handle the clearance whichever term you trade on.
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