Intro: Incoterms (International Commercial Terms) define the responsibilities, costs, and risks between buyer and seller in international trade. Knowing which Incoterm to use — and when — prevents costly misunderstandings and ensures smooth logistics.
Most Commonly Used Incoterms
| Incoterm | Stands For | Seller Responsibility | Buyer Responsibility |
| EXW | Ex-Works | Goods available at factory | All transport, insurance & customs |
| FCA | Free Carrier | Deliver to carrier or named location | Freight, insurance, import |
| FOB | Free on Board | Load goods onto vessel at origin port | Risk and cost from vessel loading |
| CIF | Cost, Insurance & Freight | Freight and insurance to destination port | Risk from destination port |
| DAP | Delivered at Place | Transport to named destination | Import clearance |
| DDP | Delivered Duty Paid | Full logistics including import duties | Receive goods |
Key Factors When Selecting an Incoterm
- Mode of Transport — Some Incoterms are valid only for sea freight (FOB, CIF), others for all modes of transport (DAP, DDP)
- Risk management —Have a precise definition of where the buyer and seller responsibility lies.
- Cost control — Incoterms determine who pays for freight, insurance and customs
- Customs interaction – establish who handles export and import paperwork.
- Business capability – suit the logistics capability of each party.
Common Incoterms Mistakes
- Confusing insurance and transportation responsibilities
- Using outdated Incoterms versions instead of Incoterms rules 2020
- Using sea-freight only Incoterms (FOB, CIF) for air freight shipments
- Not specifying the exact place of delivery
- Overlooking documentation requirements for customs clearance.