How to choose the right INCOTERM | Remar International

INCOTERMS (International Commercial Terms) are rules published by the International Chamber of Commerce (ICC) that define the obligations of buyers and sellers in an international transaction.

They determine, among other things:

Who pays for transportation
Who arranges insurance
The point at which risk transfers
Who handles export and import customs clearance

Whether in import or export operations, choosing the right INCOTERM is a strategic decision, as it defines who assumes the costs, risks, and responsibilities at each stage of international transportation.

In this blog, we help you make the best decision to avoid unexpected expenses, customs delays, or contractual disputes.

Types of INCOTERMS in Force (INCOTERMS 2020)

INCOTERMS are divided according to the level of responsibility assumed by the seller.

Group E – Departure

EXW (Ex Works)
The seller makes the goods available at their premises. The buyer assumes almost all costs and risks from origin.

Group F – Main carriage not paid by the seller

FCA (Free Carrier)
The seller delivers the goods to the carrier designated by the buyer.

FAS (Free Alongside Ship)
The goods are delivered alongside the vessel at the port of shipment.

FOB (Free On Board)
The seller fulfills their obligation once the goods are loaded on board the vessel.

Group C – Main carriage paid by the seller

CFR (Cost and Freight)
The seller pays for transportation to the destination, but risk transfers at origin.

CIF (Cost, Insurance and Freight)
Similar to CFR, but includes minimum insurance coverage.

CPT (Carriage Paid To)
The seller pays transportation costs to the agreed destination.

CIP (Carriage and Insurance Paid To)
Includes insurance coverage at a higher level than CIF.

Group D – Delivery at destination

DAP (Delivered At Place)
The seller delivers the goods at destination, without clearing them for import.

DPU (Delivered at Place Unloaded)
The seller delivers and unloads the goods at the agreed location.

DDP (Delivered Duty Paid)
The seller assumes all costs, including import duties and taxes.

Key Factors for Choosing the Right INCOTERM

1. Level of Experience in International Trade

If your company has logistics experience and strong supply chain control, you may assume greater responsibility (for example, under terms such as FOB or FCA).

If you prefer to minimize risks and delegate most of the transportation, terms like DAP or DDP may be more suitable.

2. Ability to Manage International Transportation

Do you have a reliable logistics operator?
Do you maintain control over shipping lines, airlines, or ground transportation?

Working with an experienced freight forwarder allows you to maintain greater control over routes, transit times, and costs, which may make negotiating under FOB or FCA more convenient.

3. Type of Goods

Perishable goods, heavy machinery, or high-value cargo require specific analysis.

For example:

Sensitive cargo may require greater control over insurance coverage.
Oversized goods may involve strategic decisions regarding who arranges the main transportation.

4. Cost and Margin Control

Some INCOTERMS include additional services within the sales price. While this can simplify operations, it may also increase costs if not negotiated properly.

Evaluating the total landed cost (not just the product price) is essential to avoid surprises at destination.

5. Risk and Responsibility

One of the most common mistakes is failing to understand when risk transfers.

For example:

Under FOB, risk transfers once the goods are loaded on board the vessel.
Under EXW, almost all risk is assumed by the buyer from origin.
Under DDP, the seller assumes nearly all responsibility until final destination.

Choosing an INCOTERM without fully understanding this point can lead to disputes and financial losses.

Which INCOTERM Is Best?

There is no universally “better” INCOTERM. The right choice depends on:

Your operational experience
Your logistics structure
Your negotiation leverage
The country of origin and destination
Your company’s financial strategy

Proper logistics and customs advisory support helps you select the most suitable INCOTERM to reduce risk and maintain control over costs and transit times.