22/07/2025
INCOTERMS
Incoterms (short for International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international trade, specifically regarding shipping, insurance, documentation, and customs clearance.
Why Incoterms are Important:
They help avoid confusion in cross-border transactions by clearly stating:
Who pays for transportation
Who handles insurance
Where the goods are delivered
Who is responsible for risks at each stage
Two Main Categories:
For any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU, DDP
For sea/inland waterway only: FAS, FOB, CFR, CIF
Real-world examples of Incoterms to help you understand how they're used in import-export business:
1. EXW (Ex Works) - Minimum Responsibility for Seller
Example:
An Indian spice exporter sells cumin seeds to a buyer in Germany EXW Delhi.
The buyer arranges pickup from the seller's factory, handles export clearance, shipping, and import duties in Germany.
The seller only packs and makes-goods available at their premises.
Best for experienced buyers who manage full logistics.
2. FOB (Free on Board) - Common in Sea Freight
Example:
A textile company in Mumbai ships goods to a buyer in Dubai FOB Mumbai Port.
The seller handles transport to port and loads the goods onto the vessel.
The buyer handles ocean freight, insurance, and import clearance
Common for bulk sea shipments.
3. CIF (Cost, Insurance, and Freight) - Seller Pays More
Example:
A Chennai-based company ships coconut oil to a buyer in Kenya CIF Mombasa Port.
The seller pays for transport and marine insurance up to Mombasa port.
The buyer handles customs clearance and inland delivery.
Ideal when buyers want the seller to handle most logistics.
4. DDP (Delivered Duty Paid) - Seller Handles Everything
Example:
A laptop manufacturer in Taiwan ships products to a retailer in France DDP Paris.
The seller arranges everything: export, freight, import clearance, duties, and door delivery.
The buyer just receives the goods.
Best for new or small buyers who want zero hassle.
