What Are Incoterms® — And Why Do They Cost Businesses Millions?

11 trade rules govern every international shipment. Most exporters get at least one wrong. Here's what you need to know.

What are Incoterms®?

The International Chamber of Commerce (ICC) created Incoterms in 1936 to standardize international trade terms. The current 2020 revision includes 11 rules that define:

  • Where and when delivery occurs
  • When risk transfers from seller to buyer
  • Who pays for freight, insurance, and customs clearance
  • Documentation and notification obligations
Important: What Incoterms Do NOT Cover
Incoterms do NOT govern payment terms, title transfer, or what happens if goods are damaged after delivery. These must be specified separately in your sales contract.

The 11 Incoterms at a Glance

Click any Incoterm to see a plain-language explanation

Common Mistakes

Using FOB for Containerized Cargo

FOB was designed for break-bulk cargo loaded directly onto ships. For containers, use FCA instead. Risk transfers when goods are handed to the carrier at the container yard, not when they cross the ship's rail.

EXW with Inexperienced Buyers

Under EXW, the buyer must handle export clearance in the seller's country. Most buyers can't do this. The shipment gets stuck at customs, and the seller still bears reputational and practical risk.

CIF Without Specifying Insurance

CIF requires the seller to provide insurance, but only at minimum coverage (ICC Clause C - 110%). For high-value goods, specify ICC Clause A (all-risk) coverage or the buyer may be underinsured.

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