A Practical Guide to Incoterms in Foreign Trade

In any foreign trade contract, the answers to "who pays for what, and when does risk change hands" are defined by the Incoterms® rules. Published by the International Chamber of Commerce (ICC), these 11 standardized rules clarify how cost and risk are split between buyer and seller.

Why do Incoterms matter?

Without the right Incoterm, questions like "who pays for freight" or "who's responsible for insurance" stay ambiguous and can lead to disputes. Choosing the right rule clarifies both cost planning and risk management. Try our Incoterm Selector Wizard to find the rule that fits your specific shipment.

The most commonly used rules

EXW (Ex Works) — The seller's responsibility is at its lowest; goods are made available at the seller's own premises. The buyer takes on all transport and customs formalities from loading onward.

FOB (Free On Board) — Used only for sea/inland waterway transport. The seller is responsible until the goods are loaded on board the vessel at the port of shipment; freight and insurance afterward fall to the buyer.

CIF (Cost, Insurance, Freight) — Similar to FOB, but the seller also arranges freight and minimum marine insurance. Risk still transfers to the buyer at loading — only the cost split differs.

DDP (Delivered Duty Paid) — The seller's responsibility is at its highest; it covers delivery all the way to the destination, including import clearance and duties.

To compare cost and risk splits side by side, check our FOB vs CIF and EXW vs FCA comparison pages.

When is each rule preferred?

Rules like FOB suit buyers who have their own trusted freight/insurance network and want direct control over freight pricing. CIF or DDP can be more practical when the buyer has limited logistics experience, or when the seller can secure better rates through volume freight contracts.

Calculate the cost split

Once you've settled on an Incoterm, use our Cost & Responsibility Calculator to see exactly which cost item (packaging, clearance, freight, insurance, duties) falls to which party.

Incoterms® rules are not a substitute for legal advice; make sure your contract clearly states which rule and which version (e.g., Incoterms® 2020) you're using, and consult an expert before making a final decision.