What are Incoterms | The Practical Guide

Incoterms, short for International Commercial Terms, are a set of standardized rules published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international trade, helping both parties avoid confusion and disputes.

Whether you're a small business shipping overseas or a logistics manager managing global supply chains, understanding Incoterms is essential for smooth, cost-effective transactions.

Not sure which Incoterm fits your shipment? SendIt helps companies navigate international logistics, from customs paperwork to end-to-end delivery support.

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What Are Incoterms?

Incoterms are globally recognized trade terms that outline who is responsible for shipping, insurance, import duties, and delivery at each stage of the transaction.

They answer key questions like:

• Who pays for freight and insurance?

• Who handles customs clearance?

• When does the risk transfer from seller to buyer?

Incoterms are updated periodically by the ICC. The most recent version is Incoterms 2020, which replaced the 2010 version.

Why Incoterms Matter

Using the right Incoterms:

• Prevents misunderstandings in contracts

• Clarifies cost and risk responsibilities

• Helps in compliance with trade laws and customs

• Improves logistics planning and cost control

International trade can get complicated fast. That’s why many importers and exporters partner with SendIt to simplify shipping terms, ensure compliance, and reduce costly errors.

How Do Incoterms Work?

Each Incoterm consists of three letters (like FOB or DDP) followed by a named place (like “Port of Shanghai” or “Buyer’s warehouse in Berlin”). The terms can be grouped into two main categories:

1. For any mode of transport (e.g., EXW, FCA, DDP, DAP, CIP)

2. For sea and inland waterway transport only (e.g., FOB, CFR, CIF)

   
   

Key Incoterms Explained

Let’s break down some of the most commonly used Incoterms:

FOB – Free on Board

Best when the buyer has strong control over shipping.

• Used for: Sea or inland waterway transport

• Seller’s responsibility ends when goods are loaded onto the vessel at the port of shipment.

• Buyer covers ocean freight, insurance, import clearance, and local delivery.

DDP – Delivered Duty Paid

It is easiest for buyers, as the seller takes on most of the risk and cost, but it can be risky for sellers if they are unfamiliar with the buyer’s country's import processes.

• Used for: Any transport mode

• Seller handles everything, including shipping, import duties, taxes, and delivery to the buyer’s location.

Do you want to offer DDP but are nervous about managing foreign duties or taxes? SendIt takes care of cross-border logistics so you don’t have to worry about the fine print.

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DAP – Delivered at Place

Good middle ground, seller controls the delivery, but the buyer handles local customs.

• Used for: Any transport mode

• Seller delivers the goods to a named location, but the buyer is responsible for import duties and taxes.

EXW – Ex Works

Best for sellers who want minimal responsibility, but buyers need strong logistics capabilities.

• Used for: Any transport mode

• Buyer picks up goods from the seller's location and takes full responsibility from there.

If you're buying EXW and need reliable ground pickup or customs agents, SendIt can arrange it all, on your behalf, in any country.

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CIF – Cost, Insurance, and Freight

Provides the buyer with some assurance through insurance coverage.

• Used for: Sea transport

• Seller covers the cost and insurance to the port of destination, but risk transfers once goods are loaded on the ship.

Here is a more complete breakdown of all Incoterms.

Quick Comparison Table

Term	Seller Pays For	Buyer Pays For	Risk Transfers At
FOB	Origin transport, export customs	Freight, insurance, import, delivery	When goods are loaded on ship
DDP	Everything incl. duties & delivery	Nothing (until arrival)	Upon final delivery
DAP	Transport to destination	Duties, taxes, unloading	Upon arrival at buyer’s place
EXW	Nothing beyond making goods available	Everything else	At seller’s premises
CIF	Freight, insurance to port	Port handling, duties, and delivery	Once loaded on the ship

Still unsure? SendIt will help you make informed decisions that fit your shipping strategy and needs.

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Choosing the Right Incoterm

Here’s a quick guide:

• If you're a seller wanting low responsibility, use EXW.

• If you're a buyer wanting a turnkey solution, ask for DDP.

• If you're confident in shipping logistics, choose FOB or DAP.

• Shipping by sea? Consider FOB, CIF, or CFR.

Final Thoughts

Understanding Incoterms like FOB, DDP, and DAP helps you avoid costly surprises in international trade. Choosing the right term can protect your margins, streamline logistics, and build better business relationships.

Whether you're shipping a container of electronics or importing raw materials, Incoterms are the rules of the game, and SendIt is here to help you play it smarter.