Incoterms Explained (What They Are and Which One to Use)
Overview
Incoterms (International Commercial Terms) are standardised rules used in international shipping to define who is responsible for shipping, costs and risk at each stage of delivery.
They determine:
• Who pays for transport
• Who is responsible for customs and duties
• When risk transfers from seller to buyer
Choosing the correct Incoterm is critical, as it directly impacts cost, customer experience and delivery success.
How Incoterms Work
Each Incoterm clearly defines the responsibilities between the seller and the buyer.
These responsibilities include:
• Transport costs (origin and destination)
• Export and import customs clearance
• Duties and taxes
• Risk transfer point (when the shipment becomes the buyer’s responsibility)
For example, some Incoterms require the seller to handle everything door-to-door, while others shift most responsibility to the buyer once goods leave the origin country.
Key Incoterms and Their Differences
Below are the most commonly used Incoterms in eCommerce and fulfilment:
DDP (Delivered Duty Paid)
Seller responsibility: Maximum
Buyer responsibility: Minimal
• Seller pays for shipping, duties, and taxes
• Seller handles customs clearance
• Goods are delivered fully cleared to the customer
Best for:
• Direct-to-consumer (D2C) brands
• Providing a smooth customer experience
• Avoiding unexpected charges at delivery
DDP definition can be found here.
DAP (Delivered at Place)
Seller responsibility: High
Buyer responsibility: Duties & taxes
• Seller pays for shipping to the destination
• Buyer is responsible for import duties and taxes
• Customs clearance is typically handled on arrival
Best for:
• Brands wanting to reduce costs vs DDP
• Markets where customers are used to paying import fees
DAP definition can be found here.
EXW (Ex Works)
Seller responsibility: Minimal
Buyer responsibility: Maximum
• Buyer handles all shipping, customs and risk from origin
• Seller only makes goods available at their premises
Best for:
• Wholesale or B2B arrangements
• Experienced buyers with their own logistics setup
EXW definition can be found here.
FCA (Free Carrier)
Seller responsibility: Moderate
Buyer responsibility: Majority after handover
• Seller delivers goods to a carrier or agreed location
• Buyer takes over shipping, customs and risk from that point
Best for:
• B2B shipments
• When buyers control their own freight
FCA definition can be found here.
