The international rules that govern who pays for what, who insures what, and who is responsible at each step of an international shipment are codified as the Incoterms® rules, published by the International Chamber of Commerce. The most recent revision is Incoterms® 2020, which is currently in effect. This article walks through the Incoterms you are most likely to see in practice, the documents that travel with international cargo, and how to read a supplier's quotation without being surprised at port.
What Incoterms actually do
An Incoterm is a three-letter abbreviation that, when attached to a named place, defines three things: at what point cost transfers from seller to buyer, at what point risk transfers from seller to buyer, and which party is responsible for which logistics tasks. They do not define ownership of the goods, they do not define payment terms, and they do not define the contract of sale. Those are separate matters.
Incoterms come in two families. The first family (EXW, FCA, CPT, CIP, DAP, DPU, DDP) applies to any mode of transport. The second family (FAS, FOB, CFR, CIF) applies only to sea and inland-waterway transport. Choosing an Incoterm from the wrong family for your shipment is a frequent source of confusion.
The Incoterms you will encounter most often
EXW — Ex Works
The seller makes the goods available at their premises (or another named place) and the buyer takes responsibility from that point. The buyer arranges export clearance, loading, transport, insurance, import clearance, and delivery. EXW gives the buyer maximum control but maximum operational burden. It is appropriate for buyers who have their own logistics setup or a strong freight forwarder at origin.
FOB — Free On Board
The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment. Risk passes when the goods are on board. FOB is one of the most common Incoterms in sea freight because it splits the responsibility cleanly: the seller handles everything up to and including export clearance and loading; the buyer handles ocean freight, insurance, and everything at destination. FOB only applies to ocean and inland-waterway shipments.
CIF — Cost, Insurance and Freight
Like FOB, but the seller also pays for ocean freight to the named destination port and arranges a minimum level of insurance during the voyage. Risk still passes at the origin port — an important nuance — but cost continues to sit with the seller until the destination port. CIF is common for buyers who do not yet have an established freight forwarder. The trade-off is that the seller controls the routing and the insurance, which is sometimes set at a minimum level only.
CFR — Cost and Freight
The same as CIF but without insurance. The seller pays freight to the named destination port; the buyer arranges its own insurance.
DAP — Delivered At Place
The seller delivers the goods to a named place at destination, ready for unloading. The seller bears all costs and risks of bringing the goods there, except import clearance and import duties, which remain with the buyer. DAP is useful for buyers who want a delivered cost but want to keep control of the import declaration.
DDP — Delivered Duty Paid
The seller delivers the goods cleared for import at the named place at destination, including import duties and taxes. DDP places the maximum burden on the seller. It is attractive for buyers because it produces a single landed cost — but suppliers price the risk into the quotation, and DDP can be impractical in markets where the seller cannot easily act as importer of record.
The documents that travel with your cargo
Almost every international shipment carries the same core set of documents. Knowing what they are, and how to read them, is the single biggest unlock for a buyer who is new to international trade.
The Commercial Invoice is the seller's invoice to the buyer for the goods. It is also the document customs authorities use to assess value for duty. Mismatches between the commercial invoice and the actual goods are a very common cause of customs delays.
The Packing List details what is in each carton, palette, or container, with weights and dimensions. Customs uses it; your warehouse uses it on arrival; your insurer uses it if there is a claim.
The Bill of Lading (or Air Waybill for air freight) is the carrier's receipt for the goods and, in many cases, a document of title. The original bill of lading is often required to take delivery at destination; a missing or incorrectly issued bill of lading can hold up a container at port for days.
The Certificate of Origin states the country in which the goods were manufactured. For shipments under preferential trade agreements, the Certificate of Origin determines whether the buyer pays full duty or a reduced rate.
An Inspection Certificate, where used, documents that a third-party inspector has examined the goods before shipment and confirmed they meet the agreed specification. For first-time orders, inspection certificates are well worth the cost.
Insurance Certificates, regulatory certifications (where applicable), and any country-specific import documents complete the picture.
How to read a supplier quotation
When you compare two supplier quotations side by side, do not start with unit price. Start with the Incoterm. A quotation that does not name an Incoterm is incomplete. A quotation at EXW is not the same number as a quotation at CIF. Make sure all quotations you are comparing are normalised to the same Incoterm — at minimum, ask each supplier to provide their unit price at both FOB and at CIF to your destination port.
Then read every other field carefully. MOQ tells you whether the price applies to your volume. Lead time tells you whether the supplier can meet your calendar. Payment terms tell you what cash you need to commit and when. Packaging detail and labelling capability tell you whether the goods will arrive in saleable condition. Validity tells you how long the quotation holds. A complete quotation answers all of these questions; an incomplete one is asking you to assume.
Closing thought
Incoterms, shipping documents, and quotation reading are not advanced topics. They are foundational. Once you can read them confidently, you can negotiate confidently, you can compare suppliers honestly, and you can plan your costs accurately. That is the difference between a business that imports occasionally and a business that imports professionally.