What are Incoterms?

Incoterms (short for International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international and domestic shipping transactions, particularly regarding:

• Delivery obligations
• Cost allocation
• Transfer of risk

Incoterms are widely used in purchase contracts, logistics, and customs documentation, helping to avoid misunderstandings in global trade.

Why Are Incoterms Important in Procurement?

In procurement, choosing the right Incoterm is critical to:

• Define who pays for transport, insurance, duties, and taxes
• Establish who bears the risk at each stage of delivery
• Ensure legal clarity in international supplier relationships
• Avoid costly errors and delays at customs or in transport handovers
  

Without a clear Incoterm, procurement teams risk disputes, unexpected costs, and delivery issues.

How Do Incoterms Work?

Each Incoterm consists of a three-letter abbreviation (e.g. FOB, DDP, EXW) that specifies the point at which:

• Risk transfers from seller to buyer
• Transport and insurance responsibilities shift
• Import/export formalities are handled

Example:

• FOB (Free On Board): Seller delivers goods to port and loads them onto the vessel. Buyer takes over from there.
• DDP (Delivered Duty Paid): Seller covers all costs (shipping, insurance, import duties) until goods reach buyer’s door.
  

List of Common Incoterms

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Note: Some Incoterms apply only to sea transport (e.g. FOB, CIF), others are multimodal (e.g. FCA, DDP).

Best Practices for Using Incoterms in Procurement

• Always pair the Incoterm with a named place (e.g. FOB Hamburg Port)
• Ensure alignment with internal stakeholders (legal, logistics, finance)
• Include Incoterms in contracts and purchase orders
• Use updated versions of Incoterms
• Assess Incoterms based on your sourcing strategy (cost focus vs. control)

Incoterms in Procurement Platforms

Procurement Platforms enable you to:

• Track Incoterms per supplier and transaction
• Compare landed costs based on Incoterm scenarios
• Standardize contract templates with default Incoterm clauses
• Ensure global sourcing teams apply consistent trade rules

Procurement Platforms help reduce risk in international procurement through structured, Incoterm-aware processes.

Conclusion: Incoterms as a Global Procurement Standard

Incoterms provide a clear, legally recognized framework for cross-border shipping responsibilities. For procurement teams engaged in international sourcing, mastering Incoterms is essential for cost control, risk mitigation, and smooth supplier collaboration.