What Are Incoterms® in Logistics? An Introduction for Importers and Exporters

What Are Incoterms® in Logistics? An Introduction for Importers and Exporters

Incoterms® (International Commercial Terms) are a set of internationally recognised rules that define the responsibilities of buyers and sellers in international trade transactions. These rules are published and maintained by the International Chamber of Commerce (ICC). 

The International Chamber of Commerce (ICC) first created Incoterms® in 1936 to standardise delivery terms and reduce friction in cross‑border trade. Over the years, the ICC has updated the rules to reflect changes in logistics, documentation, and transport practices. These updates were reflected most recently in Incoterms® 2020. This evolution helps businesses keep their contracts aligned and up-to-date with real‑world shipping operations.

Instead of drafting long clauses to explain who pays for freight, who arranges insurance, or which party handles customs, companies can simply use a short Incoterms® code such as EXW, FOB, or CIP.

Why are Incoterms® Important?

The 11 Incoterms® rules define how responsibilities are shared between buyers and sellers when shipping goods. Each of these rules describes a specific set of obligations: which party arranges and pays for transport, who is responsible for export and import customs, and when risk transfers from seller to buyer. Because these rules are standardised, they can be applied across different countries and legal systems without reinventing the wheel for every transaction or deal.

Essentially, Incoterms® provide clarity in three key areas: tasks, costs, and risks.

• Tasks: Who arranges transport, books carriers, obtains export licences, and handles customs documentation at origin and destination.
• Costs: Who pays for each stage of the journey, including local handling, main carriage, insurance, duties, and taxes.
• Risks: The point at which the risk of loss or damage to the goods moves from seller to buyer, for example at the seller’s gate, on board the vessel, or after unloading at the destination terminal.

It is important to note that while Incoterms® helps provide more clarity, it does not decide everything in a sales contract: they do not set the price, payment terms, or transfer of ownership (title), nor do they replace local contract law. Incoterms® plug into the contract as the agreed delivery and responsibility framework that logistics teams can execute in day‑to‑day operations.

In Incoterms® 2020, the 11 rules are divided into two categories. The first covers rules for any mode of transport, and the second covers rules for sea and inland waterway transport.

Overview of All the Incoterms®

The Seven Incoterms® for Any Modes of Transport

In Incoterms® 2020, there are seven rules that can be used for any mode of transport. Below is a brief overview of each Incoterm®, including typical use cases, when the seller’s responsibility ends, and the key buyer responsibilities. Understanding these will help you decide which terms to negotiate with your suppliers and where a logistics partner like Halcon Primo Logistics can add the most value.

• EXW – Ex Works

• • Typical Use Cases: When the buyer wants full control of logistics from the seller’s premises onward, often used when the buyer has strong local and international forwarding capabilities.
  • Seller Responsibility Ends When: Goods are placed at the seller’s premises (not loaded), ready for collection at the agreed time and place.

• • Key Buyer Responsibilities:

• • • Load goods at the seller’s premises and arrange all subsequent transport.
    • Handle export customs, security filings, and documentation.
    • Arrange insurance from the seller’s door to the final destination.
    • Manage import clearance, duties, taxes, and last-mile delivery.

• FCA – Free Carrier

• • Typical Use Cases: Containerised or multimodal shipments where the buyer controls the main carriage but wants the seller to manage export formalities.
  • Seller Responsibility Ends When: Goods are delivered to the carrier or another nominated party at the named place, loaded and cleared for export.

• • Key Buyer Responsibilities: 

• • • Arrange and pay for the main carriage from the named place.
    • Arrange insurance from the point of delivery to final destination.
    • Handle import customs, duties, taxes, and on-carriage. 

• CPT – Carriage Paid To 

• • Typical Use Cases: When the seller wants to arrange and pay for main transport but transfer risk earlier in the journey.
  • Seller Responsibility Ends When: Goods are handed over to the first carrier at the agreed place (risk transfer), even though the seller pays freight to the named destination.

• • Key Buyer Responsibilities: 

• • • Bear risk from the point the goods are handed to the first carrier.
    • Arrange additional insurance if desired.
    • Handle import clearance, duties, taxes, and any onward transport beyond the named destination.

• CIP – Carriage and Insurance Paid To

• • Typical Use Cases: Higher-value or sensitive cargo where the seller arranges freight plus comprehensive insurance to the named destination.
  • Seller Responsibility Ends When: Goods are handed over to the first carrier at the agreed place (risk transfer), while the seller pays freight and minimum required insurance up to the named destination.

• • Key Buyer Responsibilities:

• • • Bear risk from the point of delivery to the first carrier.
    • Decide whether to increase insurance cover beyond what the seller provides.
    • Manage import customs, duties, taxes, and any further inland transport.

• DAP – Delivered At Place

• • Typical Use Cases: Door-to-door solutions where the seller manages transport all the way to a named place, but the buyer handles import formalities.
  • Seller Responsibility Ends When: Goods are placed at the buyer’s disposal on the arriving means of transport at the named place, ready for unloading but not yet unloaded.

• • Key Buyer Responsibilities:

• • • Unload the goods at the named place.
    • Perform import clearance, pay duties, taxes, and any regulatory fees.

• DPU – Delivered At Place Unloaded

• • Typical Use Cases: Projects or destinations where the buyer wants the seller to handle both delivery and unloading at a terminal, warehouse, or site.
  • Seller Responsibility Ends When: Goods are delivered and physically unloaded at the named place.

• • Key Buyer Responsibilities:

• • • Handle import customs, duties, and taxes if not already completed.
    • Move goods from the unloading point to final storage or production areas.
    • Arrange any additional insurance after unloading, if needed.

• DDP – Delivered Duty Paid 

• • Typical Use Cases: “All-in” offers where the seller wants to provide a fully landed, customs-cleared solution to the buyer’s door.
  • Seller Responsibility Ends When: Goods are delivered at the named place in the country of import, cleared for import and ready for unloading.

• • Key Buyer Responsibilities:

• • • Unload the goods at the delivery point.
    • Manage any internal distribution after delivery.
    • Ensure local compliance on product use and internal processes.

Note: Under Incoterms® 2020, DPU has replaced the previous term DAT (Delivered at Terminal), reflecting that delivery can take place at locations other than just terminals.

The Four Incoterms® for Sea and Inland Waterway Transport

There are a total of four Incoterms® rules for sea and inland waterway transport.

• FAS – Free Alongside Ship

• • Typical Use Cases: Bulk or project cargo where the buyer controls the ocean freight and port operations but the seller manages export delivery to the quay.
  • Seller Responsibility Ends When: Goods are placed alongside the vessel (for example, on the quay or barge) at the named port of shipment, cleared for export. 

• • Key Buyer Responsibilities:

• • • Arrange and pay for loading onto the vessel and the main sea carriage.
    • Arrange insurance from the point goods are alongside the ship.
    • Handle import clearance, duties, taxes, and onward inland transport.

• FOB – Free on Board

• • Typical Use Cases: Traditional sea freight for non-containerised cargo where the buyer controls the main carriage but expects the seller to load goods on board.
  • Seller Responsibility Ends When: Goods are loaded on board the vessel at the named port of shipment, cleared for export.

• • Key Buyer Responsibilities: 

• • • Pay for sea freight, insurance, and any destination terminal charges.
    • Handle import customs, duties, and taxes.
    • Manage onward inland transport from the port of arrival.

• CFR – Cost and Freight

• • Typical Use Cases: Commodities and bulk cargo where the seller arranges ocean freight to the destination port but risk transfers at loading.
  • Seller Responsibility Ends When: Goods are loaded on board the vessel at the port of shipment (risk transfer), though the seller pays freight to the named destination port.

• • Key Buyer Responsibilities:

• • • Bear risk during the sea voyage from loading onward. 
    • Arrange insurance for the main carriage if desired.
    • Handle destination terminal charges, import clearance, duties, taxes, and inland haulage. 

• CIF – Cost, Insurance, and Freight

• • Typical Use Cases:  Sea shipments where the seller arranges freight and minimum insurance cover to the destination port, often in commodity trades.
  • Seller Responsibility Ends When: Goods are loaded on board the vessel at the port of shipment (risk transfer), while the seller pays freight and agreed insurance to the destination port.

• • Key Buyer Responsibilities:

• • • Bear risk during transit from the moment the goods are on board.
    • Assess whether to buy additional insurance beyond the seller’s minimum cover.
    • Pay destination terminal handling, import duties and taxes, and inland transport. 

Why Incoterms® Matter for Logistics and Buyers

For logistics and supply chain teams, Incoterms® translate high-level contract language into operational steps. When a company chooses a particular rule and location (for example, FOB Shanghai, Incoterms® 2020), it defines which party will engage forwarders, which party’s name appears on transport documents, and who manages delays or damages at each stage. 

For buyers and importers, understanding Incoterms® is essential for:

• Budgeting and cost control: Knowing exactly which legs of the journey they pay for and which are included in the purchase price. 
• Risk management: Understanding when they take on the risk for damage or loss and whether they need additional cargo insurance. 
• Supplier negotiation: Comparing supplier offers that may appear similar on unit price but differ greatly once freight, insurance, and duties are included. 

For sellers and exporters, the right Incoterms® help align their service promise, internal capabilities, and margin expectations. A seller or exporter with strong logistics expertise might confidently sell under CIF or DAP, while another seller or exporter may prefer EXW or FCA to limit exposure and focus on manufacturing.

How Incoterms® Help Reduce Disputes and Delays

Since these rules are recognised globally, courts, trade councils, and logistics providers frequently refer to Incoterms® to interpret shipping obligations. Explicitly stating the chosen rule, the version (for example Incoterms® 2020), and the named location in the sales contract significantly reduces ambiguity. 

This clarity helps to prevent common issues such as: 

• Disputes over which party should pay for unexpected handling charges or storage fees.
• Confusion about who was responsible when cargo was damaged during pre-carriage or main carriage.
• Delays at customs because neither side clearly accepted responsibility for licenses or documentation. 

By using Incoterms® consistently, businesses create repeatable and predictable logistics workflows. This makes it easier for internal teams to follow clear processes and for external partners to understand exactly what is expected at each stage. This predictability supports on-time delivery, healthier cash flow, and a stronger relationship with customers and suppliers. 

What This Means for Current Clients and New Importers

Whether you’re just starting to import or already managing complex regional supply chains, choosing the right Incoterms® is an important business decision. It directly affects your landed cost, risk profile and delivery performance. When responsibilities and risk transfer points are unclear, even a small misunderstanding can quickly snowball into demurrage charges, customs delays, or strained supplier relationships.

For new importers, partnering with an experienced logistics provider means you do not have to become an Incoterms® expert overnight. Halcon Primo Logistics will help you compare EXW vs FOB, CIF vs CIP, or DAP vs DDP in practical, financial terms: who pays what, where the risks sit, and how each choice would impact your cash flow and inventory plans. Instead of decoding fine print alone, you get a clear picture and cost options before you commit to a contract, so you can make confident, data‑driven decisions.

For our existing clients, optimising Incoterms® is one of the fastest ways to unlock hidden savings and reduce operational headaches. By reviewing your current purchasing and sales terms lane by lane, we can identify where you may be over-exposed on risk, paying avoidable local charges, or missing opportunities to consolidate freight under more efficient terms. Many customers find that a few targeted Incoterms® changes lead to smoother handovers with suppliers, fewer damage disputes, and more predictable lead times. 

Halcon Primo Logistics’ team works end‑to‑end with your procurement, finance, and operations stakeholders to align commercial terms with the realities of transport, customs, and last‑mile execution. We translate Incoterms® choices into concrete actions: which party books the carriers, who manages customs and security filings, how insurance should be structured, and what needs to change in your internal SOPs. You get one point of contact coordinating the entire move, from contract wording to final‑mile delivery.

If you’re planning a new sourcing initiative, renegotiating supplier contracts, or simply want to sanity-check the Incoterms® you use today, now is the right time to start. Share your key trade lanes and current terms with us, and we will map out a practical, data-driven proposal showing where different Incoterms® – and a stronger logistics partner – can reduce risk, improve predictability, and lower your total landed cost across your key trade lanes.