Incoterms
A set of internationally recognized trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international transactions, covering shipping, insurance, and customs.
Incoterms (International Commercial Terms) are standardized three-letter codes — such as FOB, CIF, DDP, and EXW — that define exactly where responsibility transfers from seller to buyer in an international trade transaction. They cover who pays for transport, who arranges insurance, who handles customs clearance, and at what point risk passes.
For procurement teams managing international supply chains, understanding Incoterms is essential. The wrong Incoterm selection can result in unexpected shipping costs, insurance gaps, or customs delays. The current version, Incoterms 2020, includes 11 rules divided into rules for any mode of transport and rules specifically for sea and inland waterway transport.
Common example: A European manufacturer ordering components from a Chinese supplier on DDP (Delivered Duty Paid) terms means the supplier bears all costs and risks until the goods arrive at the buyer's warehouse, including import duties. On EXW (Ex Works) terms, the buyer takes on all risk and cost from the supplier's factory gate.