If you’ve ever been involved in international trade, you’ve probably come across the phrase what are Incoterms.
Maybe in a shipping document, maybe during a conversation with a freight forwarder. But while the word might sound complicated, Incoterms are actually built to make trade smoother.
Let’s break it down.
What are Incoterms?
Incoterms stands for International Commercial Terms.
They’re a standardized set of trade terms developed by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in global transactions.
They answer questions like:
- Who handles the shipping cost?
- Who’s in charge of insurance?
- At what point does the risk transfer from seller to buyer?
Think of Incoterms as the rulebook for who does what when goods move from one country to another.
Why Are Incoterms Important?
The incoterms importance lies in clarity and trust.
Without clear definitions, businesses can run into disputes over who should pay for shipping or who takes the fall if cargo is damaged. Incoterms remove that gray area.
By agreeing on a specific Incoterm, like FOB (Free On Board) or DDP (Delivered Duty Paid), both parties know exactly what they’re responsible for. Less confusion, less risk, and fewer surprises.
Common Shipping Incoterms You Should Know
Here are a few shipping incoterms that come up often:
1. FOB (Free On Board)
Seller delivers goods to the port and covers export costs. The buyer handles the rest.
2. EXW (Ex Works)
Buyer picks up goods from the seller’s location and handles everything.
3. DDP (Delivered Duty Paid)
Seller takes care of everything until goods reach the buyer’s door, including duties.
There are 11 Incoterms in total, and each one defines how shipping, insurance, risk, and delivery are shared.
Final Thoughts
Getting a handle on what are incoterms can save time, reduce confusion, and help avoid costly mistakes.
Clear shipping terms mean fewer surprises and smoother operations.
If you’re dealing with multiple warehouses or managing orders across regions, Teamship helps keep everything in one place, so you stay organized, informed, and in control from start to finish.
Frequently Asked Questions
1. Do Incoterms cover payment terms too?
No, Incoterms don’t define how or when a buyer pays the seller. They only cover shipping responsibilities, risks, and costs.
2. Are Incoterms legally binding?
They become binding only when included in a sales contract. Without mention, local law might apply instead.
3. How often are Incoterms updated?
The ICC updates them roughly every 10 years. The latest version is Incoterms 2020.