Incoterms are often treated as simple shipping terms—just a few letters added to an invoice or quotation. In reality, Incoterms define who is responsible for costs, risks, and obligations at every stage of an international shipment. Misunderstanding them is one of the most common reasons importers end up paying far more than they expected.
Many buyers assume that the price they receive from a supplier represents the total cost of the shipment. This assumption is usually wrong. Incoterms determine exactly where the supplier’s responsibility ends and where the buyer’s responsibility begins. If this is not clearly understood from the start, unexpected charges quickly appear.
Take EXW (Ex Works) as an example. On paper, EXW often looks like the cheapest option because the factory price is low. What many buyers do not realize is that under EXW, the supplier’s responsibility ends at the factory gate. Everything else—local pickup, export clearance, transport, customs, and delivery—is the buyer’s responsibility. Without proper coordination, EXW shipments often become more expensive than expected.
FOB (Free On Board) is another commonly misunderstood term. While it includes export clearance and delivery to the port of origin, buyers are still responsible for ocean freight, insurance, destination port charges, customs duties, and local delivery. Many importers incorrectly assume FOB covers shipping to their country, only to be surprised by costs that were never discussed.
CFR (Cost and Freight) and CIF (Cost, Insurance, and Freight) can appear more convenient because the supplier arranges the main transport. However, these terms still do not include destination charges, customs duties, or local delivery. In addition, when suppliers control the freight, buyers often have limited visibility into actual shipping costs and little control over service quality.
The real issue is not which Incoterm is “best,” but whether the buyer understands how each term affects the total landed cost. Two quotations for the same product can look very different simply because different Incoterms are used. Without breaking down the responsibilities step by step, it is impossible to compare offers accurately.
Another risk is that factories often provide Incoterms based on convenience rather than suitability. Their focus is production, not cost optimization for the buyer. As a result, buyers may unknowingly agree to terms that increase risk, reduce transparency, or shift critical responsibilities onto them without adequate preparation.
This is where professional guidance becomes essential. Understanding Incoterms requires more than knowing their definitions—it requires understanding how they interact with freight costs, customs procedures, local regulations, and real-world logistics. A well-chosen Incoterm can simplify operations and control costs, while a poorly chosen one can lead to delays, disputes, and unnecessary expenses.
At Alanovas, we help clients choose Incoterms based on their specific shipment, destination, and level of experience. We explain the cost implications clearly, identify hidden risks, and ensure that responsibilities are aligned with what the client can realistically manage. By doing so, we help clients avoid surprises and make informed decisions before any commitment is made.
In international trade, Incoterms are not just technical details—they are financial decisions. Understanding them properly is a key step toward predictable costs, smoother shipments, and successful long-term trade operations.
