1. What an incoterm is and why it matters
Incoterms (International Commercial Terms) define, in three letters, who pays what and who takes the risk on each leg of an international shipment: from the supplier's factory to your warehouse. Choosing the wrong incoterm isn't a technicality — it can mean paying freight twice, losing control of your cargo, or discovering costs at destination that nobody warned you about.
2. The 6 incoterms you'll actually use
| Incoterm | The supplier delivers at… | Ideal when… |
|---|---|---|
| EXW | Their factory or warehouse | You want full control of logistics and have an agent at origin |
| FCA | To the carrier you appoint | You want control from origin without handling the supplier country's inland logistics |
| FOB | On board the vessel at the origin port | You import by sea and want to choose the international freight yourself (the most used on Asia–LATAM) |
| CFR | Destination port (freight paid, risk yours from origin) | The supplier gets a better freight rate than you — but watch out for control |
| CIF | Like CFR + minimum insurance included | You need simplicity; check that the insurance coverage is enough |
| DDP | Your warehouse, duties paid | You want zero management — you pay for the convenience and lose cost visibility |
3. Real example: FOB import Shanghai → Manzanillo
You buy 2 containers of auto parts from a supplier in Shanghai on FOB terms:
- The supplier pays: inland transport in China, export clearance and handling until the cargo is on board the vessel.
- You pay (with your forwarder): ocean freight, insurance, handling in Manzanillo, import clearance and transport to your plant.
- Risk changes hands when the cargo is on board: if something happens at sea, it's your insurance that responds — that's why FOB without cargo insurance is a gamble.
4. Real example: DAP export from Santiago
You export wine to a distributor in Mexico City on DAP terms (delivered at place): you coordinate and pay the whole journey — ground freight to the port, ocean, and final delivery — and your customer only clears the import and pays duties. It's a powerful commercial argument ("I'll drop it at your warehouse"), but it requires a forwarder with door-to-door visibility so surprises don't eat your margin.
5. The 3 most expensive mistakes we see
- Buying EXW with no agent at origin: you end up paying the inland logistics of a country you don't know, at rush prices.
- Accepting CIF without reading the policy: minimum insurance (Clause C) doesn't cover wetting or partial theft — the two most common causes of loss.
- Confusing where risk changes with where cost changes: on CFR and CIF the supplier pays the freight, but the risk is already yours from the origin port.
6. A quick rule to decide
If your volume is steady and you want to optimize costs: FOB (ocean) or FCA (air/multimodal) with a forwarder you trust. If you're starting out and prefer simplicity: CIF, checking the insurance coverage. And when in doubt, ask — our team reviews your case at no cost.