1. What are Incoterms?
**Incoterms** (International Commercial Terms) are a set of rules published by the International Chamber of Commerce (ICC). They define the division of tasks, costs, and risks associated with the transportation and delivery of goods from sellers to buyers.
Using standard Incoterms in sales contracts prevents misunderstandings regarding who is responsible for shipping costs, customs clearance, insurance, and transit risk.
2. Core Incoterms Breakdown
EXW (Ex Works)
The seller makes the goods available at their warehouse. The buyer is responsible for loading, local trucking, export clearance, ocean shipping, and import duties.
FOB (Free On Board)
The seller is responsible for export customs clearance and delivering the goods on board the ship. Risk and future costs transfer to the buyer once the goods are on board.
CIF (Cost, Insurance & Freight)
The seller pays the freight costs and marine insurance to transport the goods to the destination port. However, risk transfers to the buyer as soon as the goods are loaded on the vessel at the export port.
DDP (Delivered Duty Paid)
The seller handles everything. They pay for shipping, export clearance, import duties, customs clearance, and delivery to the buyer's destination warehouse.
3. Summary Table of Responsibilities
| Incoterm | Export Customs | Ocean Freight | Risk Transfer Point |
|---|---|---|---|
| EXW | Buyer | Buyer | At Seller's Warehouse |
| FOB | Seller | Buyer | Loaded on Board Vessel |
| CIF | Seller | Seller | Loaded on Board Vessel |
| DDP | Seller | Seller | At Buyer's Facility |
4. Expert Insight
Always specify the named place or port clearly in your sales contract (e.g., "FOB Port of Nhava Sheva, India"). This ensures there is no ambiguity on where risk and responsibility transfer.
