There are eleven Incoterms. On a first export you will realistically use four, and choosing badly between them is where new exporters lose their margin — not on the product price.
What an Incoterm actually decides
An Incoterm answers two questions and nothing else: at which point does the cost stop being yours, and at which point does the risk stop being yours. Those two points are not always the same, and that is where most disputes start.
EXW — Ex Works
The buyer collects at your factory gate. You load nothing, you clear nothing, you pay nothing beyond having the goods ready.
It looks like the safest option and it is the one most first-time exporters quote. The problem is practical: your buyer now has to arrange export clearance in your country, which they usually cannot do. In practice you end up doing it anyway, unpaid and without it appearing in your price.
FOB — Free On Board
You deliver the goods loaded on the vessel at your port and handle export clearance. From the moment they are on board, cost and risk are the buyer’s.
This is the workhorse of container trade and the one we quote most often. It gives the buyer control of the freight — which importers with their own shipping arrangements strongly prefer — while keeping your responsibility inside your own country, where you can actually manage it.
CFR — Cost and Freight
You pay the ocean freight to the destination port, but risk still transfers when the goods are loaded. That asymmetry catches people out: if the container is lost at sea, you have paid the freight and the buyer bears the loss.
Useful when the buyer wants a single landed-at-port number and has no freight agreement of their own. Quote it only if you have real freight rates, not estimates.
DDP — Delivered Duty Paid
You deliver to the buyer’s door with all duties and import clearance paid. Maximum convenience for the buyer, maximum exposure for you.
Avoid DDP on a first shipment to a market you do not know. You are taking on customs procedures, duty rates and local charges in a country where you have no representation. A single misclassified tariff line can erase the margin on the whole container.
The practical rule
- First shipment to a new market: quote FOB.
- Buyer has no freight arrangement: CFR, with real quoted rates.
- Buyer insists on EXW: agree, but price the export clearance in.
- DDP: only once you have someone on the ground in that market.
One more thing that is not in the Incoterm: payment terms. The Incoterm decides who pays for transport and who carries the risk. It says nothing about when you get paid. Those are two separate negotiations and mixing them is how exporters end up with goods on a ship and no money.
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