In the complex world of global trade, there is much to consider and decide. Before choosing your logistics partner, buyers and sellers must agree on the terms of trade about both the movement and the transfer of ownership of purchased goods. Incoterms® is a globally recognized set of rules designed to help bring order to this multifaceted process.
What are the Incoterms®?
The Incoterms® rules are a set of 11 trade terms devised by the International Chamber of Commerce (ICC). In North America, including the USA and Canada, the following five Incoterms® are the most used:
- Free on Board (FOB): The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment.Read more about FOB.
- Ex-Works (EXW): The buyer receives the cargo directly from the factory and thereafter arranges shipment, insurance, and other related services.
- Free Carrier (FCA): The seller delivers the goods to a carrier or another person nominated by the buyer at the seller's premises or another named place.
- Delivered Duty Paid (DDP): The seller bears all the costs and risks involved in bringing the goods to the place of destination and must clear the goods.Read more about DDP.
- Cost Insurance & Freight (CIF): The seller delivers the goods, cleared for export, onboard the vessel at the port of the shipment.Read more about CIF.
These terms alone are not law, but the commercial contracts in which they are used can be legally binding as they describe the obligations, costs, and transfer of risk between parties.
Who bears the responsibility under each incoterm?
Each incoterm has a different split of responsibilities between buyer and seller. For example, with Ex Works the buyer bears most of the responsibility. Whereas in Delivered Duty Paid the seller has most of the responsibility.
For a simple overview, download the visual guide.
Please visit the ICC website for full overview and insights on the Incoterms®.
Which incoterm is best for my business in the USA and Canada?
The question shippers need to ask themselves is under what circ*mstances would they want full control of a particular aspect of a transaction, and when might it make more sense to cede control to another party? Which incoterm is best for your business depends entirely upon your overall business team's profile, sophistication, and capabilities to manage the complexities of any given transaction.
Incoterms® and the Incoterms® 2020 logo are trademarks of ICC. Use of these trademarks does not imply association with, approval of or sponsorship by ICC unless specifically stated above. The Incoterms® Rules are protected by copyright owned by ICC. Further information on the Incoterms® Rules may be obtained from the ICC website iccwbo.org.
