Incoterms Made Simple: Who Pays, Who Risks, Who’s on the Hook
If you’ve ever sat in a shipping meeting or reviewed an international freight contract and heard someone casually drop FOB, CIF, or DAP, you might have thought: What the world are they talking about?
Good news — you’re not alone.
Incoterms (short for International Commercial Terms) are one of those things that float around the supply chain world like common knowledge, yet nobody really stops to explain them. So, let’s break it down in plain language.
The Quick Answer
Incoterms are a set of international rules published by the International Chamber of Commerce (ICC) that define who’s responsible for what when goods move from a seller to a buyer across borders.
They clear up confusion on:
🔴 Who pays for shipping and insurance?
🔴 Who handles customs clearance?
🔴 When does the risk transfer from seller to buyer?
In other words, they prevent arguments (and lawsuits) about who’s on the hook when something goes wrong.
Why Should You Care?
Because if you’re buying or selling internationally, you’re playing by Incoterms whether you know it or not.
If you ignore them, you might:
Overpay for freight or insurance
Accidentally take on more risk than you should
Get stuck with surprise costs or customs delays
Even if you’re not the logistics expert on your team, you need to know the basics so you don’t get blindsided.
The Main Players (aka the Ones You’ll Hear Most)
What Do All These Incoterms Mean?
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Buyer picks up goods from the seller’s location; buyer handles all transportation, costs, and risk from there.
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Seller delivers goods to a named place or carrier chosen by the buyer; risk transfers at that point.
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Seller delivers goods alongside the vessel at the port; buyer takes on costs and risk once goods are next to the ship.
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Seller covers costs to load goods onto the ship; buyer takes over once they’re on board.
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Seller pays costs to get goods to the destination port, but buyer takes risk once loaded on the ship.
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CIF (Cost, Insurance, and Freight): Same as CFR, but seller also provides insurance for the goods during transit.
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Seller pays for carriage to the destination, but risk passes to buyer once handed over to the carrier.
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Like CPT, but seller also provides insurance.
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Seller delivers to the buyer’s location (excluding import duties); buyer handles import costs.
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Seller delivers and unloads goods at the buyer’s place; buyer handles import duties.
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Seller handles everything — delivery, unloading, and import duties — right to the buyer’s door.
What They Don’t Do
Important: Incoterms do not cover the entire sales contract. They don’t say:
❌ When or how you get paid
❌ Ownership transfer
❌ What happens if the goods are defective
They only define who handles transportation, insurance, and customs at each step.
Final Take
So what are Incoterms®, really?
They’re the common language that helps keep global trade moving smoothly — by clearly defining who handles transportation, insurance, and customs at each step of the shipment.
If you’re in logistics, supply chain, or procurement, understanding your Incoterms can save you time, money, and costly surprises.
And if you’re still unsure? That’s why most companies work with experienced logistics partners who can help select the right terms and manage the details.
The key is knowing enough to ask the right questions — and having the right partner to back you up.
Want a quick reference to keep it all straight?
Download our free Incoterms Reference Guide here.
It’s a simple, visual guide that helps you see at a glance:
Who’s responsible for which costs
Where risk transfers between buyer and seller
What terms you should pay extra attention to when shipping internationally
Fill out the form to download your copy — and if you ever want to talk international freight strategy, we’re here to help.
