Incoterms — definition
Standardised set of trade terms published by the International Chamber of Commerce defining which party bears cost, risk and responsibility at each stage of shipment.
Incoterms such as EXW, FOB, CIF and DAP specify the point at which risk and cost transfer from seller to buyer, covering transport, insurance, customs clearance and delivery obligations. They do not address payment terms, title transfer or dispute resolution, which are set separately in the contract.
Why it matters to industrial buyers
Selecting the appropriate Incoterm clarifies who is responsible for freight, insurance and customs costs, reducing the risk of disputes during cross-border equipment shipments.
Key reference points
Current version
Incoterms are periodically revised by the International Chamber of Commerce, with the 2020 edition in common use as of the mid-2020s.
Common industrial terms
FOB, CIF, DAP and EXW are commonly used for industrial equipment shipments, depending on buyer logistics capability.
Commonly confused with
Payment milestones
Incoterms govern risk and cost transfer for shipment; payment milestones govern when contract payments fall due.
How it is used in practice
A contract specifies DAP at the buyer's factory, meaning the supplier bears transport and risk until the equipment arrives at the agreed destination.
Frequently asked questions
Do Incoterms determine when ownership transfers?
No, Incoterms address cost and risk transfer for transport; title transfer is typically addressed separately in the sale contract.
Which Incoterm is most common for heavy machinery imports?
FOB and CIF are commonly used, though DAP is increasingly requested by buyers wanting delivered pricing.
Go deeper on the platform
Related terms
Lead Time
Elapsed time between order confirmation and delivery or readiness of equipment for shipment, encompassing engineering, manufacturing, testing and logistics.
Payment Milestones
Predefined points in a contract at which agreed portions of payment become due, typically linked to design approval, manufacturing progress, shipment and acceptance.
Scope of Supply
Contractual description of the equipment, services, deliverables and responsibilities a supplier is obligated to provide under an agreement.
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Reference content only. Global B2B Group is independent of equipment manufacturers and financing institutions; definitions are provided for education and do not constitute engineering, financial or legal advice.