Incoterms – Cheat Sheet.
Incoterms (International Commercial Terms) are crucial to the supply chain because they clearly define the responsibilities of buyers and sellers in international trade. They specify who is responsible for costs, risks, and tasks at each stage of the shipping process, reducing confusion and disputes. By setting global standards, Incoterms improve coordination between suppliers, carriers, and customers across borders. Ultimately, they help streamline logistics, minimize delays, and ensure smoother, more efficient supply chain operations.
Cheat Sheet Expanded Below:
For All Modes of Transport
| Incoterm | Delivery Point | Risk Transfer | Cost Responsibility |
|---|---|---|---|
| EXW (Ex Works) | Seller’s premises | At seller’s location | Buyer |
| FCA (Free Carrier) | Agreed place (e.g., port, terminal) | When goods handed to carrier | Seller (up to handoff), then Buyer |
| CPT (Carriage Paid To) | Named place of destination | When goods handed to first carrier | Seller |
| CIP (Carriage and Insurance Paid To) | Named place of destination | When goods handed to first carrier | Seller (includes insurance) |
| DAP (Delivered at Place) | Named place in buyer’s country | Upon arrival at destination (not unloaded) | Seller |
| DPU (Delivered at Place Unloaded) | Named place in buyer’s country | Upon unloading at destination | Seller |
| DDP (Delivered Duty Paid) | Buyer’s premises | Upon arrival at buyer’s location | Seller (includes all duties) |
🛳 For Sea and Inland Waterway Transport
| Incoterm | Delivery Point | Risk Transfer | Cost Responsibility |
|---|---|---|---|
| FAS (Free Alongside Ship) | Port of shipment | When goods placed alongside ship | Seller (up to dock), then Buyer |
| FOB (Free On Board) | Port of shipment | When goods are on board the ship | Seller (up to ship), then Buyer |
| CFR (Cost and Freight) | Port of destination | When goods are on board the ship | Seller (freight only) |
| CIF (Cost, Insurance & Freight) | Port of destination | When goods are on board the ship | Seller (includes insurance) |
Quick Tips
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EXW: Minimum seller responsibility.
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DDP: Maximum seller responsibility.
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FCA, CPT, CIP: Good for container shipping.
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FOB, CFR, CIF: Use only for bulk or break-bulk sea cargo.
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Always specify the named place or port (e.g., FOB Hamburg, DAP New York).
Key Ways Things Can Go Wrong with Incoterms
🚫 1. Choosing the Wrong Incoterm
Using an inappropriate term (e.g., using EXW when the buyer isn’t prepared to handle export formalities) can lead to delays, extra costs, or customs issues.
🧾 2. Lack of Clarity in the Contract
If the chosen Incoterm isn’t clearly specified in the sales contract (e.g., “FOB” without stating the port), it can create legal ambiguity and finger-pointing when things go wrong.
🚚 3. Misunderstanding Responsibilities
If one party assumes the other will handle certain costs (insurance, customs clearance, duties), it can lead to gaps in logistics, unpaid fees, or goods being held up at borders.
🗺️ 4. Not Updating to the Latest Version
Incoterms are updated periodically (e.g., Incoterms 2020). Using outdated terms can cause confusion, especially if trading partners assume different definitions.
📦 5. Mismatched Expectations Between Departments
Sales teams may negotiate one term, but logistics or finance teams may operate under another. Without internal alignment, shipping processes can break down.
In short, misusing Incoterms can lead to disputes, shipment delays, cost overruns, and damaged relationships. That’s why it’s vital to choose the right term, define it clearly in contracts, and ensure everyone involved understands their role.
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Logistics Quotes
- “Freight mobility and movement, while not a sexy policy issue, is a highly important one. Capacity constraints and congestion on our nation’s freight rail system create many problems.” ~Bill Lipinski
- “It takes four months to ship food aid and 40 percent of the cost is in the shipping. People cannot eat shipping costs. We have had people die when there are surpluses in the markets.” ~Andrew Natsios
- “Without logistics the world stops.” ~Dave Waters
- “As we look at a future where we’re going to have to double our freight capacity, how do you create a freight system that’s integrated across the country when you have 50 different freight systems that are built one state at a time?” ~Anthony Foxx
- “I never predict freight rates; nobody can do that.” ~Søren Skou
- “You will not find it difficult to prove that battles, campaigns, and even wars have been won or lost primarily because of logistics.” ~Dwight D. Eisenhower.
- “The line between disorder and order lies in logistics.” ~Sun Tzu, The Art of War.
- “Getting a project started is like moving a ship. It takes a lot of energy to build up momentum.” ~Susan Collins
- “If the highest aim of a captain were to preserve his ship, he would keep it in port forever.” ~Thomas Aquinas
- “Admire a small ship, but put your freight in a large one; for the larger the load, the greater will be the profit upon profit.” ~Hesiod
