Incoterms define who pays for shipping, who manages logistics, and when risk shifts in global trade. Choosing the right term helps keep your shipments moving and your costs under control.
Once a purchase is finalized, the conversation between buyers and sellers shifts from price to shipping responsibility.
Who will handle transportation? Who will pay for insurance? Who will take the risk if something goes wrong during shipping?
This is where Incoterms come in.
These are a set of rules that determine the responsibilities of buyers and sellers in international trade.
By choosing the right Incoterm, both parties know exactly who covers the costs, who handles the paperwork, and when the risk shifts from seller to buyer.
Read on to learn about the different Incoterms and how to choose the right one for your next shipment.
Short for International Commercial Terms, Incoterms are globally recognized trade rules published by the International Chamber of Commerce (ICC).
They set out the shipping responsibilities of both buyers and sellers.
Without clear rules, misunderstandings can happen between the parties, which could potentially lead to delays, additional expenses, or disputes.
Incoterms solve this problem by creating a common language for international trade.
They define who pays for transport, who handles insurance, who manages customs clearance, and when responsibility shifts from one party to the other.
The seller makes the goods available at their premises, without loading or transport. The buyer then takes care of loading, transport, and both export and import clearance.
In this case, the buyer is responsible for most costs and risks.
The seller delivers the goods to a carrier nominated by the buyer, usually taking care of transportation to the carrier and export clearance.
Once the carrier receives the goods, the risk shifts to the buyer.
The seller’s job is to place the goods next to the vessel at the port terminal and clear them for export.
From there, the buyer takes over all costs and risks, including loading, freight, and insurance.
The seller delivers the goods on board the vessel at the port of shipment.
Once they are loaded, the risk shifts to the buyer, who is also responsible for paying all costs from there onwards.
The seller delivers the goods on board, takes care of clearance, and pays for transport to the destination port.
The risk passes to the buyer as soon as the goods are loaded on the vessel.
Similar to CFR, but the seller also covers insurance up to the destination port.
Risk, however, still transfers when the goods are loaded.
The seller clears the goods for export, pays the fees, and arranges transport to the agreed destination.
Risk transfers to the buyer once the goods are handed to the carrier.
Similar to CPT, but here the seller also pays for insurance coverage to the destination.
Risk still transfers to the buyer when the goods are handed to the carrier.
The seller bears the cost and risk until the goods arrive at the agreed-upon destination, ready for unloading.
The buyer then handles unloading, import clearance, and duties.
The seller takes the goods all the way to the agreed-upon port or destination and unloads them, bearing all costs and risks until arrival.
The buyer then takes responsibility for unloading, import clearance, and duties.
The seller takes on the most responsibility, covering all costs until the goods are delivered to the buyer, including import duties.
The buyer only needs to unload the goods.
FAS, FOB, CFR, and CIF rules are used for sea and inland waterway transport.
The remaining rules are used for any mode of transport.
Not every Incoterm works for every shipment.
The right choice depends on how much control you want, how much risk you’re prepared to take, and how experienced your trading partner is with international logistics.
Importers often prefer Incoterms where the seller takes on more responsibility because it reduces the amount of paperwork and coordination on their side.
Exporters, on the other hand, may prefer terms where their responsibility ends earlier in the process.
Working with a freight forwarder can help you identify the term that aligns with your business needs and goals.
Incoterms are the framework that keeps international trade clear and predictable, and choosing the right term can help you avoid disputes, hidden costs, and shipment delays.
At Cole International, we provide freight forwarding solutions to help businesses like yours navigate the entire shipping journey, including selecting the right Incoterm.
Here’s how we can help:
Our goal is to help you ship your goods smarter and faster.
Please reach out to one of our trade professionals for more information about Incoterms and to help you choose the one that best fits your business.