Incoterms (International Commercial Terms) are globally recognized trade rules that define the responsibilities of buyers and sellers in international shipping. These terms specify who handles shipping costs, insurance, customs clearance, and risk at different points in the supply chain. Understanding Incoterms helps businesses avoid disputes, reduce costs, and ensure smooth transactions.

1. Why Are Incoterms Important?

   Incoterms clarify:

   • Who pays for transportation and insurance?
   • Who is responsible for customs duties?
   • When does the risk transfer from seller to buyer?

2. Key Incoterms and Their Meanings

   A. Incoterms for Any Transport Mode

   • EXW (Ex Works) – Buyer takes full responsibility from the seller’s warehouse.
   • FCA (Free Carrier) – Seller delivers to a named place (e.g., port or terminal).
   • CPT (Carriage Paid To) – Seller covers transport costs but not insurance.
   • CIP (Carriage and Insurance Paid To) – Seller pays for transport and insurance.
   • DAP (Delivered at Place) – Seller delivers to the buyer’s location but without customs clearance.
   • DDP (Delivered Duty Paid) – Seller handles everything, including customs and duties.

   B. Incoterms for Ocean Freight Only

   • FAS (Free Alongside Ship) – Seller delivers goods to the port. Buyer is responsible from there.
   • FOB (Free on Board) – Seller pays for loading onto the ship; risk transfers to the buyer afterward.
   • CFR (Cost and Freight) – Seller covers shipping but not insurance.
   • CIF (Cost, Insurance, and Freight) – Seller covers shipping and insurance.

3. Choosing the Right Incoterm

   • For Buyers Wanting Control → EXW or FOB
   • For Sellers Wanting Full Responsibility → DDP
   • For Shared Responsibility → CIF or CPT