One of the biggest challenges in international trade is figuring out who’s responsible for what—and which Incoterm applies. Who bears the risk during shipping? Who covers the costs and ensures goods arrive safely? Incoterms offer clear rules that define responsibilities between buyers and sellers.
By understanding these essential commercial terms, you can avoid costly mistakes and streamline your global logistics. Excited to learn how Incoterms can transform the way you handle international shipments? Read on as we break down the most common terms and show you how they simplify the process!
What Does Incoterms Mean?
Incoterms stands for International Commercial Terms. And are a set of rules used in international trade to clearly define the responsibilities of buyers and sellers. They specify who is responsible for different tasks, such as shipping, paying for transportation, handling risks, and other costs.
By understanding Incoterms, both buyers and sellers can avoid confusion and ensure they know what each of them is supposed to do in a transaction, especially when shipping goods across countries.
What are the most used Incoterms?
Incoterms are rules used in international trade that explain who is responsible for what during the shipping process. They are grouped into four categories: Group E, F, C, and D. Each group tells you who pays for shipping, handles risks, and is in charge of the goods at different stages of the process. The key difference between the groups is who is responsible for the costs and risks at different points in the shipment. The four groups are as follows:
Group D: Delivery at the Destination
- DPU (Delivered at Place Unloaded): The seller is responsible for everything, including shipping the goods and unloading them at the destination.
- DAP (Delivered at Place): The seller handles shipping the goods to a destination. Once the goods arrive, the buyer takes over and is responsible for unloading.
- DDP (Delivered Duty Paid): The seller does everything, including paying all costs (shipping, customs, taxes). When the goods reach the buyer’s location, the buyer takes over.
Group E: Delivery at the Seller’s Location
- EXW (Ex Works): The seller just makes the goods available at their place. The buyer handles everything else, including transport and customs paperwork.
Group F: Seller Delivers to a Transport Point
- FCA (Free Carrier): The seller delivers the goods to a location (like a warehouse), and the buyer handles the rest of the shipping.
- FAS (Free Alongside Ship): The seller delivers the goods beside the ship at the port. After that, the buyer takes over.
- FOB (Free on Board): The seller gets the goods onto the buyer’s chosen ship. Once on the ship, the buyer takes responsibility for everything.
Group C: Seller Pays for Transport to the Destination Port
- CFR (Cost and Freight): The seller pays to ship the goods to the destination port. However, the buyer assumes responsibility for the goods once they’re on the ship.
- CIF (Cost Insurance and Freight): Like CFR, but the seller also pays for insurance against damage or loss of goods during shipping.
- CPT (Carriage Paid To): The seller pays to ship the goods to the destination. However, the buyer takes on any risks once the goods are handed over to the carrier.
- CIP (Carriage and Insurance Paid To): Similar to CPT, but the seller also covers the insurance for the goods during transport.
To determine the best shipping terms and ensure smooth international trade, understanding Incoterms is crucial. When combined with the Importer of Record service and Exporter of Record (EOR) service, these terms help streamline your logistics. Fill out the form for expert guidance to tailor the right Incoterms for your IOR/EOR process and meet your business needs.