A Quick Guide to Incoterms®

Incoterms® are used to specify which party arranges for the payment and handling of goods during shipping, from origin to destination.

Incoterms® are terms of sale that define who arranges for the payment and handling of the goods during shipping, from the moment the goods leave the seller’s (the manufacturer’s) door up until their arrival at the buyer’s final destination.

“Incoterms®” is shorthand for “International Commercial Terms” as defined by the International Chamber of Commerce.

Incoterms® do:

• Define the obligations and costs between the seller and the buyer. Incoterms® create common and relatively precise understanding of the respective operational obligations and costs between a seller and a buyer relating to the delivery of the buyer’s goods.
• Define the point of passage of risk between the buyer and seller regarding cargo loss or damage.
• Provide instructions to carriers, forwarders, customs brokers, and others involved in shipping your goods, as well as banks and others involved in financing.

Incoterms® don’t:

• Cover ownership/passage of title. Passage of title should be separately defined via a “retention of title” clause within the sales contract.
• Cover payment. Terms of payment for the goods are negotiated separately.
• Cover insurance. Only CIF (Cost, Insurance and Freight) and CIP (Carriage and Insurance Paid) specifically outline insurance as the seller’s responsibility. Other terms do not outline who has this responsibility.

Below is a chart summarizing each of the standard 11 Incoterms® and a description of the three most common Incoterms®.

What are the most common Incoterms®?

FOB (Free on Board)

The seller is responsible for delivering the goods to the port and loading them on board the ship, and the seller is responsible for all costs associated with those duties, including the terminal handling charge. Risk is transferred from the seller to the buyer as soon as the goods pass the ship’s railing.

EXW (Ex Works)

The seller is responsible for making the goods available at the seller’s premises. The buyer bears the full responsibility, cost, and risk from the seller’s premises.

FCA (Free Carrier)

The seller is responsible for delivering the goods to the custody of the carrier named by the buyer at the agreed delivery point and for the costs associated with delivery. The seller is also responsible for the risk and cost of loading the cargo on the means of transport provided by the carrier. The supplier is not responsible for unloading the cargo or the cost of the terminal handling charge. Risk is transferred from the seller to the buyer as soon as the goods have been handed over to a carrier.

An extra provision brought by Incoterms® 2020 to the FCA incoterm: Parties can now agree that the buyer must instruct the carrier to issue to the seller, at the buyer’s cost and risk, a transport document stating that the goods have been loaded. Then, the seller is obligated to provide such transaction document to the buyer.

Flexport will begin handling the shipment at the point where the buyer takes responsibility of the shipment according to your Incoterms®.

You will note your Incoterms® in Flexport’s app when you submit a quote request.