Understanding Incoterms 2020 in 5 minutes
Who pays for transport? Who bears the risk? Incoterms answer these questions. Here's a quick tour of the most common rules.
What are Incoterms for?
Incoterms (International Commercial Terms) are rules published by the International Chamber of Commerce. For an international sale they define who arranges and pays for transport, who covers insurance, and when the risk passes from seller to buyer.
Choosing the right Incoterm avoids costly misunderstandings: unexpected fees, blocked goods, disputes over responsibilities.
The most common rules
EXW (ex works): the buyer takes over from the factory gate. FOB (free on board): the seller delivers on board the vessel, the buyer takes on the sea freight.
CIF (cost, insurance, freight): the seller pays freight and minimum insurance to the destination port. DAP (delivered at place) and DDP (delivered duty paid) put most of the burden on the seller, with DDP including duties and taxes.
The right reflex
Always note the Incoterm AND the agreed place (e.g. "FOB Shenzhen"). Make sure your commercial invoice, Packing List and transport plan all mention the same Incoterm — a simple check that saves a lot of back-and-forth.
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