Incoterms are the 11 standardized trade terms published by the International Chamber of Commerce (ICC) that fix exactly where the seller’s responsibility for cost and risk ends and the buyer’s begins. Three letters in your contract — FOB, CIF, DDP — decide who pays the freight, who bears the loss if the cargo is damaged in transit, and who clears customs at each border. The current version is Incoterms 2020, in force since January 1, 2020. This guide explains what Incoterms do, what they deliberately do not do, and how to use them without creating a dispute you didn’t see coming.

Watch — What are Incoterms?:

What Incoterms govern — and what they don’t

An Incoterm answers three questions and only three: who arranges and pays for carriage, at what point risk of loss passes from seller to buyer, and who handles export and import formalities. Get the term right and both sides know their obligations before a single container moves.

What Incoterms do not govern is just as important, because most costly misunderstandings come from assuming they cover more than they do:

They do n