Incoterms
Definition
Incoterms are standardized international trade terms published by the International Chamber of Commerce that define where responsibility, cost, and risk transfer from seller to buyer in a shipment. Common examples include EXW, FOB, CIF, and DDP.
In Practice
Each Incoterm answers three questions: who pays for each leg of transport, who bears risk if goods are damaged or lost at each point, and who handles export and import formalities. The current set, Incoterms 2020, contains 11 terms ranging from EXW, where the buyer does almost everything, to DDP, where the seller does.
For planners, the chosen Incoterm determines which parts of lead time and freight cost you actually control. Buying FOB means you select the ocean carrier and own transit performance; buying DDP means the supplier does, and your visibility often ends at a promised delivery date.
A practical example: a retailer switching purchases from CIF to FOB takes over ocean booking through its own forwarder, gaining rate control and shipment visibility in exchange for managing freight and marine insurance itself.
Related Calculators
Related Terms
FOB is an Incoterm for sea freight under which the seller delivers goods loaded on board the vessel at the origin port, at which point cost and risk transfer to the buyer. The buyer pays for ocean freight, insurance, and everything after loading.
CIF (Cost, Insurance and Freight)CIF is an Incoterm for sea freight under which the seller pays for ocean freight and minimum insurance to the destination port, but risk transfers to the buyer once goods are loaded at origin. The buyer handles import clearance and delivery from the port.
DDP (Delivered Duty Paid)DDP is an Incoterm under which the seller is responsible for delivering goods to the buyer's named location with all transport, export and import clearance, duties, and taxes paid. It places the maximum obligation on the seller.
EXW (Ex Works)EXW is an Incoterm under which the seller simply makes goods available at its own premises, and the buyer is responsible for all transport, export and import clearance, and risk from that point onward. It places the minimum obligation on the seller.