If you're trading across borders, understanding Incoterms is essential. These internationally recognised terms help avoid confusion over who’s responsible for what during the shipping process.
Here's a simple step-by-step guide to help you choose and use the right Incoterm for your situation.
Step 1: Know What Incoterms Cover (and What They Don’t)
Incoterms are published by the International Chamber of Commerce (ICC) and are used globally to set clear terms in international trade.
They clarify:
- Who pays for transport, insurance, and duties.
- Where responsibility and risk transfer from seller to buyer.
- Who handles customs clearance for export and import.
But Incoterms don’t cover:
- Payment terms (you’ll need a separate agreement for that).
- Ownership transfer.
- Overall contract law.
Step 2: Think Through the Key Logistics Questions
Before selecting an Incoterm, ask yourself:
- Who is responsible for arranging and paying for each stage of transport?
- Where should the risk pass from seller to buyer - at the port, the warehouse, or the final destination?
- Is insurance needed? If so, who should take it out?
- Who will handle customs formalities?
- What type of transport are you using - just sea freight, or multiple modes?
- Who has better logistics capabilities at each end - the seller or the buyer?
These questions help you find the right balance of cost, control, and risk.
Step 3: Choose the Right Incoterm for Your Trade Deal
Here are a couple of examples to illustrate how different Incoterms work in practice:
Scenario 1: Buyer collects goods from the seller’s premises
- Use: EXW (Ex Works).
- The buyer arranges everything: transport, insurance, customs clearance.
- The seller has minimal responsibility.
Scenario 2: Seller delivers to the buyer’s location, including all formalities
- Use: DDP (Delivered Duty Paid).
- The seller handles transport, insurance, and all customs processes.
- The buyer receives the goods with no extra work at their end.
Step 4: Let Your Logistics Provider Know Your Incoterm
Once you’ve selected the right Incoterm, it’s vital to inform your freight forwarder or logistics partner. They need this detail to plan the shipment correctly and ensure everyone involved knows their responsibilities.
- Make sure the Incoterm is clearly stated in the shipping documents.
- For customs clearance, it’s critical that the right party is listed as the Importer of Record to avoid delays or non-compliance.
In this short video Trade Advisor Christine Murray shares some guidance on Incoterms.
Need Help ?
- Please use our Live Chat service for further guidance and access to fully funded one-to-one support on navigating Incoterms.
Prepared by the InterTradeIreland Trade Hub Team
Article Published: May 2025