Supply Chain

Incoterms

Three letters on a quote allocate the entire journey's costs and risks, and the "convenient" terms are priced convenience: opaque freight in CIF, someone else's compliance in DDP.

  • Intermediate
  • 6 min total
  • 10 chapters

What decision this helps you make: Which term your orders should use (FOB is the usual answer, with reasons), and what the term on your current quotes is actually costing you.

What this topic is

Incoterms are standardized trade terms allocating costs and risk transfer between seller and buyer along the shipment's journey (EXW, FOB, CIF, DDP and siblings), three letters that decide who pays for what to where.

Why it matters

The term quietly reprices everything: CIF hides seller-marked freight and destination-charge surprises, DDP makes the seller your importer of record, EXW hands you a foreign country's export process. And FOB's standard-recommendation status has concrete reasons worth owning.

Who should learn it

Anyone requesting or comparing supplier quotes. The term is on every one of them, deciding things.

What you will understand

  • What the letters allocate: cost legs and the risk-transfer point, separately
  • The FOB doctrine: split the work where each party has home-field advantage
  • The CIF trap: seller-controlled freight and the destination-charge surprise
  • The DDP trade: landed-price convenience against compliance in someone else's hands

Prerequisites

Common misconception

"CIF is better than FOB, the seller handles shipping, one less thing for me." The seller handles buying the shipping, with your money, marked up, from their forwarder, optimized for their cost, with destination charges commonly surfacing at your port as surprises. And the part buyers miss: under CIF, risk still transfers at loading. You own the cargo's perils across the ocean while the seller owns the freight contract. You've paid for opacity and kept the risk. FOB's "extra work" is one forwarder relationship, which the freight lessons already argued you want anyway.