Incoterms

Definition

Incoterms (short for International Commercial Terms) are a standardized set of trade rules published by the International Chamber of Commerce (ICC) that define who is responsible for shipping costs, insurance, and risk at each stage of an international shipment. Each Incoterm is represented by a three-letter code — such as FOB, DDP, or EXW — that spells out exactly where the seller’s responsibility ends and the buyer’s begins.

What Do Incoterms Mean?

Incoterms exist to remove ambiguity from international shipping contracts. Without a shared standard, buyers and sellers in different countries could interpret terms like “delivered” or “freight paid” very differently. Incoterms solve this by assigning a specific, universally recognized meaning to each shorthand code, covering who pays for transport, who insures the goods, and at what exact point risk of loss or damage transfers from seller to buyer.

Incoterms are updated periodically by the ICC, with the current version widely referred to as Incoterms 2020. A revised set, Incoterms 2025, has been the subject of recent industry discussion as businesses watch for updated guidance.

Common Incoterms

• EXW (Ex Works) — buyer takes on nearly all responsibility, picking up goods directly from the seller’s location
• FOB (Free on Board) — seller is responsible for goods until they’re loaded onto the shipping vessel; buyer takes over from there
• CIF (Cost, Insurance, and Freight) — seller covers cost, insurance, and freight to the destination port
• DDP (Delivered Duty Paid) — seller handles nearly everything, including import duties, until goods reach the buyer’s door

Why Incoterms Matter at the Dock

For warehouses and distribution centers, the Incoterm attached to a shipment determines who is on the hook for freight damage, delays, or missing paperwork by the time a trailer backs into the dock. A DDP shipment means the seller has already cleared customs and covered transport risk; an EXW shipment means the receiving facility’s team may be dealing with a carrier arranged entirely by the buyer’s side. Knowing which Incoterm applies helps dock managers anticipate documentation requirements and resolve damage claims with the right party.

Related Terms

Indemnity Bond

FOB (Free on Board)

DDP (Delivered Duty Paid)

Bill of Lading

Freight Forwarder

FAQs