The 4 Most Common Incoterms Explained
While there are 11 distinct Incoterms, the vast majority of global freight moves under one of these four arrangements. Understanding where the "handshake" of risk and cost happens is vital for both importers and forwarders.
1. EXW (Ex Works)
Maximum responsibility for the Buyer. The seller’s only job is to package the goods and leave them at their factory door. The buyer must arrange the truck to pick it up, clear it through export customs, load it onto the ship, and bring it all the way home. Buyers love this if they have a highly capable freight forwarder because it gives them total control over costs.
2. FOB (Free On Board)
The most common term for Sea Freight. The seller handles everything in their home country: they pack the goods, clear export customs, transport them to the port, and pay to have them loaded onto the vessel. The exact moment the goods cross the ship's rail, all risk and cost transfer to the buyer.
3. CIF (Cost, Insurance, and Freight)
Seller controls the main transit. The seller pays for the ocean freight and minimum insurance coverage to get the goods to the buyer's destination port. However, the risk transfers to the buyer as soon as the goods are loaded onto the ship. Once it arrives at the destination port, the buyer pays for unloading, import customs, and final delivery.
4. DDP (Delivered Duty Paid)
Maximum responsibility for the Seller. The seller acts almost like a door-to-door courier. They arrange the export, the main transport, the import customs clearance, pay the taxes/duties, and deliver it directly to the buyer's warehouse. The buyer simply opens their warehouse door and receives the goods.
At a Glance: Cost & Risk Transfer Matrix
Use this reference table to understand exactly who pays for what across the four major terms:
| Logistics Step | EXW (Ex Works) | FOB (Free On Board) | CIF (Cost, Ins, Freight) | DDP (Delivered Duty Paid) |
|---|---|---|---|---|
| Export Customs | Buyer Pays | Seller Pays | Seller Pays | Seller Pays |
| Origin Port Loading | Buyer Pays | Seller Pays | Seller Pays | Seller Pays |
| Main Ocean/Air Freight | Buyer Pays | Buyer Pays | Seller Pays | Seller Pays |
| Import Duties & Taxes | Buyer Pays | Buyer Pays | Buyer Pays | Seller Pays |
| Final Delivery to Door | Buyer Pays | Buyer Pays | Buyer Pays | Seller Pays |
Why Shippers Get This Wrong
A common mistake in international trade is assuming that whoever pays the freight also carries the risk. Under terms like CIF, the seller pays the freight cost, but if the ship sinks in the middle of the ocean, it is the buyer's problem because the risk transferred at the origin port.
This is why having an experienced, communicative Freight Forwarder is critical. Forwarders don't just move boxes; they advise shippers on which Incoterm protects their margins and minimizes their liability.
Are you a Freight Forwarder?
Your clients are searching for answers to these exact questions. By deploying SoAisy's Phase 2 Authority Engine, we populate your digital storefront and newsletters with expert insights like this—positioning you as the ultimate authority in global trade.
Explore the Freight Forwarder Roadmap