Incoterms (International Commercial Terms) is a set of globally applicable trade term rules formulated by the International Chamber of Commerce (ICC), used to clearly define the division of responsibilities between buyers and sellers regarding cargo delivery, risk transfer, and cost bearing (such as transportation, insurance, and tariffs). The latest version is Incoterms 2020, which includes 11 terms, divided into those applicable to any mode of transport (such as EXW, FCA, CPT, CIP, DAP, DPU, DDP) and those applicable only to sea and inland waterway transport (such as FAS, FOB, CFR, CIF). The use of Incoterms can reduce disputes caused by differences in laws and customs among different countries, but it should be noted that they only regulate trade procedures and do not involve the transfer of ownership of goods, liability for breach of contract, etc. Unlike the United Nations Convention on Contracts for the International Sale of Goods, Incoterms are commercial practices adopted voluntarily and must be explicitly referenced in the contract by version (such as Incoterms 2020). When selecting terms, consideration should be given to the mode of transport, risk control capabilities, cost budget, and customs clearance capabilities, avoiding conflicts between the terms and other clauses in the contract.
📝 Examples
1. We export a batch of clothing to a U.S. buyer under FOB Shanghai terms. The buyer is responsible for chartering a vessel, booking shipping space, and paying ocean freight. The risk transfers to the buyer after the goods pass the ship's rail at the port of shipment. (Note: Under FOB, the seller bears the costs and risks before loading, while the buyer bears the ocean freight and insurance.)
2. Under DDP terms, the seller must transport the goods to the destination designated by the buyer and complete import customs clearance and pay tariffs. The buyer only needs to receive the goods at the destination. (Note: DDP is the term with the greatest seller responsibility and is suitable for situations where the seller is capable of handling import customs clearance.)
💡 Foreign Trade Tips
Foreign trade terms are the foundation of international business communication
Trade practices may vary slightly by country; pay attention when using them
When using terms in contracts, specify the applicable version (e.g., Incoterms 2020)
For unfamiliar terms, use GlobalSync's multilingual email helper to confirm with your partner