Shipping International Trade Terms

27th March 2025

International Commercial Trade Terms, commonly known as Incoterms, are vital guidelines that help buyers and sellers define their responsibilities pertaining to the tasks, costs, and risks involved in the international transfer of goods. These legally binding terms, published by the International Chamber of Commerce (ICC), are recognized and followed by nearly every country around the world.

Each Incoterm clearly defines key responsibilities and obligations:

- Point of Delivery: This indicates the specific location where ownership of the goods transfers from the seller to the buyer.

- Transportation Costs: This identifies who is responsible for freight costs, categorized as either Freight Prepaid (paid by the seller) or Freight Collect (paid by the buyer).

- Export and Import Requirements: Each term specifies who is responsible for the costs and logistics associated with exporting and importing goods, making compliance straightforward.

- Freight Insurance: Some Incoterms require freight insurance, clearly stating who is liable for covering these costs.

This structured approach to international trade is crucial. We offer a helpful visualization that highlights the responsibilities associated with each Incoterm, which you can find here: ▸ IncoTerms | The Customs Centre.

When forming a contract, it’s important to carefully evaluate your options. Delaying ownership transfer might seem convenient, but it can complicate the accounting process.

For instance, teams often find themselves waiting for invoices related to shipping and insurance under Delivered Duty Paid (DDP) terms. Such delays can significantly hinder their ability to accurately forecast profits and reconcile financial statements in a timely manner.

On the other hand, choosing to pay shipping costs upfront using Ex Works (EXW) terms might appear more expensive initially. However, this option gives buyers full control over the shipping process, allowing them to negotiate better rates with freight forwarders and effectively track their shipments online.

It's important to recognize that Incoterms are just one part of the procurement process, which also includes budgeting, ordering, and implementing approval workflows. Taking a proactive approach in all these areas leads to more efficient and streamlined operations.

Have you encountered any issues while shipping? What is your preferred shipping method?