Introduction
Incoterms, short for International Commercial Terms is a globally recognized rule determined by the International Chamber of Commerce (ICC) to standardize the terms and conditions and obligations of international trade. Introduced in 1936, these terms were regularly updated to reflect the developing landscape of world trade. The latest version of Incoterms 2025 explains the responsibilities of buyers and sellers in cross-border trade, ensuring smooth adjustments in logistics, risks, and costs.
Incoterms’ main purpose is to eliminate misunderstandings and disputes arising from different interpretations of shipping liability. Without universal standards, buyers and sellers could be exposed to disputes regarding cost allocation, risk transfer, and legal obligations. By defining the handling of transportation, insurance, customs, and delivery, Incoterms promotes seamless global trading companies, reducing legal risks and improving supply chain efficiency.
Implications of Incoterms in International Trade
Clarification of buyer responsibility
In international trade, several parties are involved in the transition of goods from seller to buyer. Incoterms clearly define who is responsible for transactions at all levels. This includes arranging and paying for the shipping (seller or buyer).
Carries the risk of damage or loss to different points of transport.
The person is responsible for customs duties, taxes, and approval procedures.
Buyers under EXW (EX Works) assume full responsibility for the Seller’s transportation and risk. Conversely, the seller will take over all logistics costs and risks until the item reaches the buyer as part of the DDP (paid DDP).
Conclusion
Incoterms is the foundation of smooth international trade. By clarifying logistics, risk, and cost allocation, streamline transactions, prevent conflicts, and ensure compliance with global trade regulations. Whether you are an importer, exporter, or wool cargo, it is very important for a successful and risk-free world trade process.
