If you’ve ever seen a contract list a shipment as “FOB Mersin” or “DDP Rotterdam” and wondered what it actually means for your bottom line, you’re not alone. Incoterms — short for International Commercial Terms — are a set of eleven standardized rules published by the International Chamber of Commerce that define exactly where the seller’s responsibility ends and the buyer’s begins. Get them wrong in a contract, and you can end up paying for insurance you didn’t know you needed, or discover too late that customs clearance at destination was supposed to be your job.
Why Incoterms exist
Before Incoterms were standardized in 1936 (and most recently updated in 2020), “free on board” could mean different things in different ports, in different languages, under different legal systems. A single misunderstood term could shift thousands of dollars in liability from one party to the other. Incoterms fixed that by giving the industry a shared vocabulary — three-letter codes that mean exactly the same thing whether you’re shipping out of Istanbul or Shanghai.
The terms that matter most
You don’t need to memorize all eleven, but these five cover the vast majority of real-world shipments:
- EXW (Ex Works) — The seller’s only job is to make the goods available at their premises. The buyer handles everything else: loading, export clearance, main transport, import clearance, delivery. Maximum responsibility for the buyer.
- FOB (Free On Board) — Common in ocean freight. The seller delivers the goods on board the vessel; risk transfers to the buyer once the cargo is loaded. The seller handles export clearance.
- CIF (Cost, Insurance and Freight) — The seller pays for shipping and insurance to the destination port, but risk still transfers once goods are loaded onto the vessel at origin. A common point of confusion: the seller pays, but doesn’t bear the risk during transit.
- DAP (Delivered At Place) — The seller delivers the goods, ready for unloading, at the named destination. Import duties and taxes are still the buyer’s responsibility.
- DDP (Delivered Duty Paid) — Maximum responsibility for the seller. Goods arrive fully cleared, duties and taxes paid. The buyer just has to unload.
Choosing the right term for your shipment
The right Incoterm depends on how much control — and risk — you want to hold. A first-time importer working with an unfamiliar supplier might prefer DDP, so the seller is on the hook for every step. An experienced shipper with strong freight rates of their own might prefer FOB or EXW, taking control of transport (and its cost) themselves.
Whatever term ends up in the contract, make sure it’s paired with the correct version (“Incoterms 2020”) and a named location that’s specific and unambiguous — “FOB Mersin Port, Turkey,” not just “FOB.” Vague terms are where disputes start.
How Sealead helps
Whichever Incoterm you’re shipping under, our team handles the paperwork, customs coordination and carrier liaison that come with it — and we’ll flag anything in a quote request that looks like it might create a gap in coverage before it becomes a problem at the port.