Incoterms

Definition

Incoterms are the standardized international commercial terms published by the International Chamber of Commerce. They define where responsibility, cost, and risk transfer from the seller to the buyer in a shipment, for example EXW, FOB, CIF, and DDP.

Why it matters

The Incoterm on a transaction determines who arranges and pays for carriage, insurance, and customs, and where liability shifts. Getting it wrong changes the cost allocation and the documentation a forwarder must produce.

The most common Incoterms in ocean freight

FOB (Free On Board) and CIF (Cost, Insurance and Freight) account for the majority of ocean import transactions. Under FOB, the buyer controls and pays for the main carriage, which is the leg a freight forwarder typically manages. Under CIF, the seller pays the freight and procures minimum insurance, but risk transfers to the buyer once goods are on board at origin. EXW (Ex Works) places all logistics responsibility on the buyer from the moment goods leave the seller's facility. DDP (Delivered Duty Paid) places all costs including import duties on the seller, which is common in e-commerce but creates liability for sellers unfamiliar with destination customs requirements.

Why the Incoterm affects the forwarder's job

The Incoterm determines who is the forwarder's client at each leg. On a FOB shipment, the forwarder works for the buyer on the main carriage. On a CIF shipment, the seller has already arranged freight, and the forwarder may only be handling destination services. The Incoterm also determines what charges appear on which party's invoice, which affects how the forwarder bills the job. A charge billed to the wrong party because the Incoterm was misread creates a dispute at job close.

Incoterms 2020 and the key changes

The current version is Incoterms 2020, published by the ICC. The main change from Incoterms 2010 was the replacement of DAT (Delivered at Terminal) with DPU (Delivered at Place Unloaded), clarifying that the delivery point can be any named place where the cargo can be unloaded, not just a terminal. FCA (Free Carrier) was also updated to allow the buyer to instruct their carrier to issue an on-board bill of lading to the seller, which matters for letters of credit. The version in use should always be stated on the commercial invoice (e.g., FOB Shanghai, Incoterms 2020).