Incoterms

Incoterms (International Commercial Terms) is a set of standard rules published by the International Chamber of Commerce (ICC) — first issued in 1936 and most recently updated as Incoterms 2020 (ICC Publication 723E) — that define, via three-letter codes, the precise point of delivery, cost allocation, risk transfer, and transport/insurance responsibility between seller and buyer in international trade. Incoterms 2020 contains 11 rules: 7 usable with any mode of transport (EXW Ex Works, FCA Free Carrier, CPT Carriage Paid To, CIP Carriage and Insurance Paid To, DAP Delivered at Place, DPU Delivered at Place Unloaded, DDP Delivered Duty Paid) and 4 restricted to sea/inland-waterway (FAS Free Alongside Ship, FOB Free On Board, CFR Cost and Freight, CIF Cost Insurance and Freight). Each rule answers three fundamental questions: (1) up to where must the seller deliver the goods, (2) at which point does risk pass to the buyer, (3) which transport and insurance costs are borne by which party. Common errors include confusing CIF with CIP (CIF is sea-only, CIP is any-mode) and using DDP without recognizing the tax risk of seller-borne import clearance. For an SMB exporter Incoterms choice directly affects contract price, margin, and risk-bearing cost — the wrong choice can cause cost blow-ups during customs delays. From an OR perspective, Incoterms differences structurally change the landed-cost calculation in #022 supplier selection and #093 EOQ — the same FOB price produces a different total cost than the equivalent CIF quote.