Incoterms
Shipping & Procedures · Shipping Terms
What is Incoterms?
Incoterms (International Commercial Terms) are a standardized set of three-letter trade terms - like EXW, FOB, and DDP - published by the International Chamber of Commerce, that define exactly when risk, cost, and responsibility for a shipment transfer from seller to buyer during international shipping.
They don't determine customs duty rates themselves, but they do determine who is responsible for arranging and paying import clearance, duty, and tax - a shipment sold DDP (Delivered Duty Paid) arrives with everything already handled, while one sold EXW (Ex Works) leaves the buyer responsible for the entire journey, including import clearance.
Incoterms are like the fine print of "who's holding the bag" during shipping - they spell out exactly when the seller stops being responsible for a shipment and the buyer starts, including who has to deal with customs and pay any duty.
When to Use It
Incoterms matter whenever you’re trying to understand who is responsible for duty and import clearance on a specific order - the same product at the same price can leave you with a very different responsibility (and total cost) depending on which Incoterm the sale was made under.
Examples for Incoterms
| Incoterm | Meaning |
|---|---|
| EXW (Ex Works) | Buyer is responsible for the entire journey, including export and import clearance |
| FOB (Free on Board) | Seller handles export; buyer takes over cost and risk once goods are loaded for shipping |
| CIF (Cost, Insurance, Freight) | Seller arranges and pays shipping and insurance to the destination port; buyer handles import clearance |
| DDP (Delivered Duty Paid) | Seller handles everything, including import duty and tax - buyer pays one all-inclusive price |
Assuming a low checkout price under an EXW or FOB sale means that’s the total cost is a common and expensive mistake - those terms leave duty, tax, and import clearance entirely to the buyer, which can add a substantial amount not reflected anywhere in the original sale price.
Frequently Asked Questions About Incoterms
Do Incoterms set the customs duty rate?
No - they don’t affect the rate itself, only who is responsible for paying and arranging it. The duty rate depends on the product, origin, and destination, regardless of the Incoterm used.
What does DDP mean for a buyer?
Delivered Duty Paid means the seller has already handled and paid for import duty, tax, and clearance - the price the buyer pays is meant to be the final, all-inclusive cost with no further charges expected on delivery.
Are Incoterms only relevant for large commercial shipments?
They’re most commonly discussed in a business or wholesale context, but the same underlying question - who’s responsible for duty and clearance - applies to any cross-border purchase, even if an everyday retail checkout doesn’t always name the Incoterm explicitly.
How Well Do You Know Incoterms?
3 questions - about a minute.