Understanding Incoterms in 5 minutes

Are you negotiating an import or export contract and your counterpart is talking about FOB, CIF or DDP? These terms are not jargon invented by lawyers: they are Incoterms, international rules published by the International Chamber of Commerce (ICC) that precisely define who bears the costs and risks at each stage of transport. Mastering them can save you thousands of euros — or help you avoid a costly dispute.

What is an Incoterm?

An Incoterm (short for International Commercial Term) is a standardised rule that defines three essential things in an international sales contract: who organises and pays for the main transport, who takes out insurance, and at what point the risk passes from seller to buyer. The current version is Incoterms® 2020, published by the ICC.

The most common Incoterms

EXW (Ex Works): the seller makes the goods available at their premises. The buyer bears all costs and risks from the outset. This is the most advantageous Incoterm for the seller, but it requires the buyer to organise everything, including export customs.

FOB (Free On Board): the seller delivers the goods on board the vessel at the agreed port of shipment. From that point, the buyer takes on the costs and risks. This Incoterm is widely used in maritime trade with Asia.

CIF (Cost, Insurance and Freight): the seller pays freight and insurance to the port of destination. However, the risk passes to the buyer upon loading at the port of origin. This nuance is often misunderstood and can lead to disputes in the event of a claim.

DDP (Delivered Duty Paid): this is the most favourable Incoterm for the buyer. The seller takes full responsibility through to final delivery, including customs duties. It is often used in international e-commerce to simplify the customer experience.

DAP (Delivered At Place): the seller delivers the goods to the agreed destination, without import customs clearance. The buyer only handles the customs formalities and local taxes. It is a good compromise between DDP and FOB for shipments to countries with complex customs procedures.

How to choose the right Incoterm?

The choice depends above all on your position in the transaction (buyer or seller), your ability to organise transport, and your knowledge of the customs regulations in the destination country. As a general rule, if you are importing and have a trusted freight forwarder, negotiating on FOB or EXW terms allows you to control costs and the choice of service providers. If you are exporting and want to offer a simple experience to your foreign customer, DDP or DAP are often preferable.

At My Way Logistics, we systematically advise our clients on choosing the most appropriate Incoterm for each operation. A wrong Incoterm often means avoidable extra costs or disputes. Do not hesitate to contact us for personalised support.