Incoterms

Incoterms are standardized trade terms published by the International Chamber of Commerce that define who pays for transport and insurance and where risk passes.

Every international commodity sale has to answer the same questions: who books the ship, who insures the cargo, who clears customs, and at what point a loss becomes the buyer’s problem instead of the seller’s. Incoterms answer them with three-letter codes so that a contract can say “FOB Santos” or “CIF Rotterdam” and both sides know exactly what is included.

The terms form a ladder from minimum seller obligation to maximum. At one end the buyer collects goods at the seller’s premises; at the other the seller delivers to the buyer’s door with duties paid. Bulk commodity trade clusters around a few sea-freight terms: FOB, CFR (cost and freight), and CIF.

Incoterms do not fix the price or the transfer of ownership; they fix costs and risk. Two contracts for the same cargo at the same price are worth different amounts if one is FOB and the other CIF. The ICC revises the rules periodically, so contracts usually name the edition. See FOB, CIF and Incoterms.