Purchasing & suppliers
Incoterms
By the Supply Chain Manager team · Updated October 16, 2026
Incoterms are standard trade rules from the International Chamber of Commerce that set who pays for and carries the risk of shipping at each stage.
The current edition, Incoterms 2020, has 11 rules. Some apply to any transport mode, such as EXW (ex works), FCA, CPT, CIP, DAP, DPU and DDP (delivered duty paid). Others apply only to sea and inland waterway transport: FAS, FOB (free on board), CFR and CIF.
The rule chosen moves cost and risk between buyer and seller. Under EXW the buyer handles almost everything from the seller's premises; under DDP the seller delivers to the buyer with duties paid.
Incoterms example
Illustrative: two quotes for the same imported product, one FOB origin port and one DDP to your warehouse. The FOB price looks lower, but you still pay ocean freight, insurance, duties and local delivery, so the comparison only works on landed cost.
Why incoterms matters for distributors
For importing distributors, Incoterms decide which costs belong in landed cost and who bears the loss if goods are damaged in transit.
Common incoterms mistakes
- Comparing quotes on different Incoterms as if they were the same.
- Using FOB for container shipments where FCA is often a better fit; check with your forwarder.
Examples on this page use made-up round numbers to show the calculation. They are not benchmarks or results from real businesses.