A quick guide to Incoterms
Short answer
Incoterms are internationally agreed trade terms that define who is responsible for the cost and the risk of your goods at each stage of shipping — from your supplier's door to yours. The term you agree with your supplier decides where Prime Freight's job starts: we begin handling your shipment at the point where you, the buyer, take on responsibility.
What Incoterms cover
"Incoterms" is short for "International Commercial Terms," a set of rules published by the International Chamber of Commerce (ICC). The current version is Incoterms 2020. A good Incoterm on your purchase order does three things:
Splits the costs. It says which charges your supplier pays and which you pay.
Sets the risk transfer point. It fixes the exact moment responsibility for loss or damage passes from your supplier to you.
Gives everyone a common language. Carriers, forwarders, customs brokers, and banks all read the same term the same way.
What Incoterms do not cover
Ownership of the goods. Transfer of title is a separate matter for your sales contract.
Payment terms. When and how you pay your supplier is negotiated separately.
Insurance, mostly. Only two terms — CIF (Cost, Insurance and Freight) and CIP (Carriage and Insurance Paid To) — oblige the seller to arrange insurance, and even then only at a minimum level. For anything else, arrange your own cover. See Why insure your cargo.
The terms you'll use most
Incoterms 2020 has 11 terms. Three come up again and again in China and Asia imports:
FOB — Free On Board
Your supplier delivers the goods and loads them onto the vessel at the origin port, and pays the costs up to that point, including origin terminal handling. Risk passes to you once the goods are on board. FOB is the most common term for ocean imports because it gives you control of the main freight leg while your supplier handles export formalities.
EXW — Ex Works
Your supplier simply makes the goods available at their own premises (factory or warehouse). You take on cost and risk from that moment — including export clearance and loading. EXW gives you the most control but the most responsibility.
FCA — Free Carrier
Your supplier delivers the goods, cleared for export, to a carrier or place you name. The supplier covers delivery to that point and the cost and risk of loading. Risk passes to you once the goods are handed to the first carrier. FCA is the recommended term for container and air shipments, because "on board" isn't a clean handoff point for containerized cargo.
A quick comparison
Term | Supplier's cost ends | Risk passes to you | Best for |
|---|---|---|---|
EXW | At their own premises | At their premises | Buyers who want full control |
FCA | At the named carrier/place | When handed to first carrier | Containers and air freight |
FOB | Loaded on the vessel | Once on board the vessel | Ocean imports (most common) |
The remaining terms (FAS, CPT, CIP, CFR, CIF, DAP, DPU, DDP) shift more of the journey — and more cost and risk — onto the seller. DDP (Delivered Duty Paid) puts the most on the seller: they deliver to your door with duties paid.
How this works at Prime Freight
Prime Freight starts handling your shipment at the point where, under your Incoterm, you (the buyer) take responsibility. On an FOB shipment, that's once the cargo is loaded at origin; on EXW, it's at your supplier's door.
When you request a rate or a quote, note your Incoterm so we scope your quote correctly. If you're unsure which term to agree with a supplier, ask your Prime Freight team before you place the order — the term affects both your price and your risk.