If you have ever received a quote that ends with “FOB Jakarta” or “CIF Rotterdam”, you already know Incoterms. But knowing the acronym is not the same as understanding the risk.
What are Incoterms?
Incoterms — short for International Commercial Terms — are published by the ICC to define who does what, who pays for what, and where risk transfers in an international sale.
The three most common terms
| Term | Meaning | Risk transfers | Best for |
|---|---|---|---|
| EXW | Ex Works | At the seller’s factory | Buyers with their own logistics |
| FOB | Free On Board | When goods are on the vessel | Sea freight, classic choice |
| CIF | Cost, Insurance & Freight | On board the vessel | Buyers who want a full service quote |
| DDP | Delivered Duty Paid | At the buyer’s door | Door-to-door convenience |
Choosing the right term
A good rule of thumb:
- New to importing? Start with FOB or CIF — clear, widely understood, and insurable.
- Need a fixed landed cost? DDP gives you one predictable price, all the way to your door.
- You have your own freight team? EXW lets you control everything, but you carry most of the risk.
Common mistakes to avoid
- Assuming insurance is included — CIF only covers a minimum level of marine insurance. Consider adding all-risk cover.
- Mixing up FOB with Incoterms 2020 changes — the 2020 edition replaced “Cost and Freight” obligations with clearer security-related clauses. Always verify which edition is in your contract.
- Ignoring local costs — port handling, demurrage and destination charges can surprise you.
Final takeaway
Incoterms are about clarity, not just acronyms. A clear, written agreement covering every cost line will save you thousands — and a lot of stress.
Need help structuring your next purchase? Our trade consultants are happy to walk you through the options.
