Incoterms
Incoterms (International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce that define responsibilities for shipping, insurance, customs, and risk transfer between buyers and sellers in international trade. Using standard Incoterms prevents misunderstandings about who is responsible for what during shipment.
Examples
EXW (Ex Works): The seller makes goods available at their premises. The buyer arranges and pays for all transportation, assumes risk when goods are picked up, and handles all export and import formalities.
FOB (Free on Board): The seller delivers goods on board the vessel at the port of shipment. Risk transfers when goods cross the ship's rail. The seller handles export clearance; the buyer pays freight and insurance from that point.
DDP (Delivered Duty Paid): The seller delivers goods cleared for import at the destination, bearing all costs and risks including duties and taxes. The buyer simply receives goods at the specified location.
Definition
Incoterms serve critical functions in international trade: defining who pays for transportation at each stage, specifying where risk of loss transfers from seller to buyer, determining responsibility for insurance, and clarifying customs clearance obligations.
The current version, Incoterms 2020, includes 11 terms ranging from EXW (minimum seller responsibility) to DDP (maximum seller responsibility). Terms in between allocate various responsibilities. Selecting the appropriate term depends on capabilities, preferences, and negotiating leverage.
Incoterm selection affects total cost and risk allocation. A lower unit price with EXW terms may cost more overall when the buyer adds freight, insurance, and customs handling. Comparisons should use common terms or adjust for term differences.
Proper Incoterm usage includes specifying the version year, the term abbreviation, and the named place. For example: "FOB Shanghai, Incoterms 2020" clearly defines where risk transfers and what obligations apply.
Previous
*GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally, and COOL VENDORS is a registered trademark of Gartner, Inc. and/or its affiliates and are used herein with permission. All rights reserved. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.