What is Incoterms®? A Beginner's Guide to International Trade

What is Incoterms®?

Incoterms® (International Commercial Terms) are internationally recognized trade rules published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international transactions by specifying who is responsible for transportation costs, customs procedures, insurance, and risk at each stage of the shipment.

Although Incoterms® are not laws, they are widely accepted worldwide and are commonly incorporated into international sales contracts to reduce misunderstandings and disputes.

Why Are Incoterms® Important?

Using the correct Incoterms® helps clearly determine:

• Responsibility for freight costs
• Export and import customs clearance
• Cargo insurance obligations
• The exact point where the risk transfers from seller to buyer

Incoterms® 2020 Rules

The current version consists of 11 trade terms, including:

• EXW (Ex Works)
• FCA (Free Carrier)
• FAS (Free Alongside Ship)
• FOB (Free On Board)
• CFR (Cost and Freight)
• CIF (Cost, Insurance and Freight)
• CPT (Carriage Paid To)
• CIP (Carriage and Insurance Paid To)
• DAP (Delivered at Place)
• DPU (Delivered at Place Unloaded)
• DDP (Delivered Duty Paid)

Some terms apply to all modes of transport, while others are designed specifically for sea and inland waterway transport.

Conclusion

Selecting the appropriate Incoterms® is essential for managing transportation costs, delivery responsibilities, and commercial risks. Understanding these rules enables importers and exporters to negotiate contracts more effectively and ensure smoother international trade operations.