What Are Incoterms and Why Do They Matter for Parcel Forwarding

When shipping goods internationally, understanding Incoterms (International Commercial Terms) is essential for both buyers and sellers. These globally recognized rules define the responsibilities of sellers and buyers in international trade, including who handles shipping costs, insurance, and customs clearance. In the world of parcel forwarding, Incoterms play a crucial role in determining who is responsible for duties, taxes, and delivery logistics. 

Whether you're shopping from overseas retailers or managing bulk shipments, knowing how Incoterms impact your purchase can help you avoid unexpected fees, shipping delays, and compliance issues. In this article, we’ll break down what Incoterms are, why they matter in parcel forwarding, and how they affect your shipping experience.

The latest Incoterms 2020, established by the International Chamber of Commerce (ICC), define the responsibilities of buyers and sellers in international trade. They determine who is responsible for transportation, insurance, duties, and risk at each stage of the shipping process.  

These terms apply whether goods are shipped by sea, air, rail, or road.  

• EXW (Ex Works) – The buyer takes full responsibility from the seller’s premises, including transport, duties, and risks.  
• FCA (Free Carrier) – The seller delivers the goods to a specified location (e.g., a port, terminal, or forwarder), and from there, the buyer assumes costs and risks.  
• CPT (Carriage Paid To) – The seller pays for transport to the destination but not for insurance. Risk transfers once the goods are handed to the carrier.  
• CIP (Carriage and Insurance Paid To) – Similar to CPT, but the seller also pays for insurance.  
• DAP (Delivered at Place) – The seller delivers the goods to the buyer’s specified location, but the buyer is responsible for import duties and taxes.  
• DPU (Delivered at Place Unloaded) – The seller covers all transport costs and unloads the goods at the buyer’s location, but the buyer pays import duties and taxes.  
• DDP (Delivered Duty Paid) – The seller is responsible for everything, including shipping, import duties, and taxes – the buyer just receives the goods.  

These terms apply only to shipments by sea or inland waterways (not air or road transport).  

• FAS (Free Alongside Ship) – The seller delivers the goods next to the vessel at the port, and the buyer assumes all costs and risks from there.  
• FOB (Free on Board) – The seller is responsible until the goods are loaded onto the vessel; after that, the buyer takes over risks and costs.  
• CFR (Cost and Freight) – The seller pays for transport to the destination port, but risk transfers to the buyer once the goods are on the ship.  
• CIF (Cost, Insurance, and Freight) – Similar to CFR, but the seller also pays for insurance.  

Key Considerations for Personal Forwarding

• Check what Incoterm the retailer uses – it affects whether you’ll need to pay customs duties upon arrival.
• Some retailers don’t offer DDP shipping, meaning you may face additional charges at your parcel forwarding service.
• Be mindful of EXW purchases – these might require extra logistics that a personal shopper or freight forwarder needs to handle.

The key difference between Incoterms 2010 and Incoterms 2020 lies in the refinement of responsibilities, risk allocation, and clarity in logistics processes. While both versions define international trade rules, Incoterms 2020 introduced changes to better reflect modern shipping practices. 

One notable update is the replacement of DAT (Delivered at Terminal) with DPU (Delivered at Place Unloaded) to clarify that goods can be delivered to any designated place, not just a terminal. Additionally, Incoterms 2020 expanded insurance requirements under CIP (Carriage and Insurance Paid To), increasing the default coverage level. It also provided clearer guidance on security responsibilities and allowed FCA (Free Carrier) to include an option for a Bill of Lading with an onboard notation, which benefits sellers dealing with letter-of-credit transactions. 

Despite these updates, Incoterms 2010 are still used in some contracts, as businesses and industries may take time to transition. However, for clarity and alignment with current shipping practices, Incoterms 2020 is recommended for new agreements.

When using a parcel forwarding service, understanding Incoterms helps avoid unexpected costs and delays. Incoterms are essential in international shipping and trade as they clarify who is responsible for various aspects of the shipping process, covering everything from costs to risks during transit. 

For users of parcel forwarding services, understanding Incoterms is crucial because these terms determine who bears the cost of transportation, customs clearance, and any risks related to damage or loss during shipping. Misunderstandings about these responsibilities could lead to unexpected delays or costs.