Incoterms

What Are Incoterms?

Incoterms, short for International Commercial Terms, are a set of three-letter trade terms published by the International Chamber of Commerce (ICC). They are used in sales contracts to define who arranges and pays for transport, insurance and customs, and the point at which risk passes from seller to buyer. The current edition is Incoterms 2020. Incoterms do not cover everything in a sale, such as payment terms or when ownership transfers.

How It Works

Each Incoterm assigns responsibilities differently. A few common examples:

• EXW (Ex Works): the seller makes goods available at its premises, and the buyer handles almost everything else.
• FOB (Free On Board): the seller delivers goods onto the vessel at the named port of shipment, after which risk passes to the buyer. FOB is intended for sea and inland waterway transport.
• CIF (Cost, Insurance and Freight): the seller pays freight and minimum insurance to the destination port, but risk passes when the goods are loaded.
• DAP (Delivered At Place): the seller delivers to a named destination, and the buyer handles import clearance and duties.
• DDP (Delivered Duty Paid): the seller delivers to the destination and handles import clearance and duties.

For example, a brand buying from a factory on FOB terms pays the factory to get goods loaded at the origin port, then arranges its own ocean freight, customs clearance and delivery to its warehouse.

Why It Matters for Ecommerce Brands

The Incoterm a brand agrees to determines which costs it will pay, which risks it carries, and who it needs to hire, such as a forwarder or customs broker. Misunderstanding terms can lead to surprise invoices or disputes about damaged goods. Brands should choose terms that match their logistics capability and confirm details with their freight forwarder or customs broker. This is general information, not legal advice.