Incoterms
Incoterms are standard three-letter trade terms published by the International Chamber of Commerce that define, for a given shipment, where the seller's responsibility for cost and risk ends and the buyer's begins.
They answer three questions at once: who pays for carriage, who bears the risk if the goods are damaged, and at what precise point the handover happens. Writing 'FOB Nhava Sheva' in a contract settles all three without a paragraph of prose.
The point most frequently misunderstood is that cost and risk do not always transfer together. Under CIF the seller pays for carriage and insurance to the destination port, but risk passes to the buyer when the goods are loaded at origin. A buyer who assumes CIF means the seller carries the risk to the destination has made an expensive assumption.
Some terms are for any mode of transport and some are only for sea and inland waterway. Using FOB for an air shipment is technically wrong and creates exactly the ambiguity the terms exist to remove.
Key facts
- Published by the International Chamber of Commerce; the current set is Incoterms 2020.
- EXW places maximum obligation on the buyer; DDP places maximum obligation on the seller.
- FOB, CFR, CIF and FAS are for sea and inland waterway transport only.
- Under CIF the seller pays freight and insurance but risk transfers at loading.
- The named place must always accompany the term, e.g. 'FCA Mundra'.
Who this affects
Anyone writing or accepting an international sales contract.
How YarnTally handles it
Customers and suppliers carry a preferred Incoterm and currency, which flows onto the sale, the invoice and the shipment record.
See what else it doesReviewed September 2026. This is general information about how these rules work, not tax or legal advice, and thresholds and due dates do change. Check your own position with your chartered accountant before acting on it.