1. What are Incoterms?
Incoterms are internationally recognised trade terms published by the International Chamber of Commerce (ICC). They are short three-letter codes such as FOB, CIF or DDP that describe the responsibilities of the buyer and the seller in an international shipment.
An Incoterm defines things like who arranges freight, who arranges insurance, and where responsibility transfers from the supplier to the buyer. It does not determine customs duty, GST or any other tax. Those are set by the tariff, the customs value and the applicable rules of the destination country.
Thinking of an Incoterm as a shared shorthand between buyer and supplier is often the easiest way in. It tells everyone involved in a shipment which party is expected to organise and pay for which leg of the journey.
2. Why they matter
Understanding the agreed Incoterm helps clarify:
- who arranges freight,
- who pays freight,
- who arranges insurance,
- where responsibility for the goods transfers, and
- how landed-cost assumptions may differ between shipments.
Because Incoterms shape who pays for which parts of a shipment, they influence how freight, insurance and landed-cost figures should be read. Two shipments with the same product and unit price can end up with very different landed costs depending on the Incoterm.
MarginMining does not provide customs, tax or legal advice. This guide is educational and is intended to help you understand Incoterms before reviewing your own shipment evidence.
3. Common Incoterms
The most common Incoterms used across international ecommerce shipments are summarised below. Descriptions are intentionally short — the point is to recognise the shape of each term, not to memorise it.
| Term | Description | Freight typically arranged by | Where risk typically transfers | Commonly used for |
|---|---|---|---|---|
| EXW | Ex Works. Buyer collects the goods from the supplier's premises and takes on almost everything from that point. | Buyer | Transfers to the buyer at the supplier's premises | Small shipments where the buyer manages every leg of the journey. |
| FCA | Free Carrier. Supplier delivers the goods to a named carrier or place agreed with the buyer. | Buyer (from the named place) | Transfers to the buyer once handed to the named carrier | Containerised or air freight where handover happens before the port or terminal. |
| FOB | Free On Board. Supplier arranges export and loading; buyer takes over once goods are on board the vessel. | Buyer (from the port of loading) | Transfers to the buyer once goods are on board the vessel | Traditional sea freight arrangements. |
| CIF | Cost, Insurance and Freight. Supplier arranges and pays main freight and insurance to the destination port. | Supplier (to the destination port) | Transfers to the buyer once goods are on board the vessel, even though the supplier arranges freight | Sea freight where the supplier organises the main journey and insurance. |
| CPT | Carriage Paid To. Supplier arranges and pays freight to a named destination. | Supplier (to the named destination) | Transfers to the buyer once handed to the first carrier | Any mode of transport where the supplier organises freight but not insurance. |
| CIP | Carriage and Insurance Paid To. Similar to CPT, with the supplier also arranging insurance. | Supplier (to the named destination) | Transfers to the buyer once handed to the first carrier | Any mode of transport where the supplier organises freight and insurance. |
| DAP | Delivered At Place. Supplier delivers to a named place in the destination country, ready for unloading. | Supplier (to the named place) | Transfers to the buyer at the named place, before unloading | Door-to-door style deliveries where the buyer still handles import clearance. |
| DDP | Delivered Duty Paid. Supplier delivers to the named place with import clearance, duty and taxes handled. | Supplier (to the named place, including duty and taxes) | Transfers to the buyer at the named place | Arrangements where the supplier takes on the widest responsibility, including duty and taxes. |
No single Incoterm is universally best. What suits a shipment depends on the product, the supplier relationship, the freight arrangement and how much of the journey each party is set up to manage.
4. What MarginMining reviews
When you upload a shipment for an Import Cost Review, MarginMining may compare the stated Incoterm against your Commercial Invoice, Freight and Carrier Invoice, Packing List, shipment costs, landed-cost assumptions and supplier documentation. The review looks for consistency and clarity, not compliance.
- Incoterm stated on the Commercial Invoice against other shipment paperwork
- Freight and insurance charges against the responsibilities implied by the stated Incoterm
- Named place or port referenced consistently across documents
- Landed-cost assumptions against who is expected to pay freight, insurance and duty
- Supplier documentation for any Incoterm changes between shipments or line items
- Gaps or inconsistencies where an Incoterm is missing, ambiguous, or differs between documents
MarginMining highlights inconsistencies and review opportunities rather than determining whether an Incoterm has been applied correctly. Anything the review surfaces is a prompt to look again, not a conclusion.
5. Common issues
Examples of the kinds of issues a review may surface:
- The Incoterm is missing from the Commercial Invoice.
- Supplier documents reference different Incoterms for the same shipment.
- Freight costs on the invoice do not sit comfortably with the stated Incoterm.
- Landed-cost assumptions treat the supplier as paying freight when the Incoterm suggests the buyer does, or vice versa.
- FOB and EXW are used interchangeably even though responsibilities and costs differ.
- A DDP arrangement is assumed to include every cost, without checking what the supplier has actually agreed to cover.
Each of these is a reason to look again at the shipment evidence, or to raise a short question with your supplier or carrier clearance team, before the numbers are trusted downstream.
6. Why it matters for import reviews
Understanding the agreed Incoterm can help explain why freight charges, insurance costs and landed-cost calculations differ between shipments, even when the goods and unit prices look similar. A shift from FOB to CIF or DDP, for example, can move meaningful costs from one side of the arrangement to the other.
Treat this as commercial understanding rather than compliance advice. The value is in being able to read your own paperwork with confidence and to have clearer conversations with suppliers, freight providers and your carrier clearance team.
Related guides
Continue reading with related MarginMining guides and official resources.
MarginMining guide
Commercial Invoice Explained
What a Commercial Invoice records, why it sits at the centre of an import review, and what to check for consistency across your paperwork.
Read guideMarginMining guide
Packing List Explained
What a Packing List records, how it supports shipment verification alongside the Commercial Invoice, and what to check for consistency across your shipment evidence.
Read guideMarginMining guide
Import Declaration Explained
What an Import Declaration records, who typically lodges it, and how it fits alongside the Commercial Invoice, Packing List and origin evidence in an Import Cost Review.
Read guideMarginMining guide
HS Codes Explained
What HS Codes are, why they matter for Australian imports, and how MarginMining highlights classification review opportunities across your shipment evidence.
Read guideMarginMining guide
Freight & Carrier Invoice Explained
What a Freight or Carrier Invoice records, the charges it commonly includes, and how MarginMining reviews it alongside your other shipment evidence.
Read guide
External links open on the source publisher’s site so you always see the latest version.
8. Common questions
Which Incoterm is most common?
It depends on the shipment and the supplier. FOB is often used for traditional sea freight, while FCA, CIF, DAP and DDP are also common for ecommerce shipments. The right Incoterm for one shipment is not automatically the right one for another.
Does FOB include freight?
Under FOB the supplier arranges export and loading at the port of loading, and the buyer generally arranges and pays for the main freight from that port onwards. The specific charges shown on your paperwork are worth checking against what has been agreed.
Does DDP include duty?
In principle a DDP arrangement is where the supplier delivers with import clearance, duty and taxes handled. In practice it is worth confirming exactly what is included with your supplier before assuming a landed cost, because arrangements labelled DDP can differ.
Where do I find the Incoterm on my paperwork?
The Incoterm is commonly stated on the Commercial Invoice, sometimes on the Packing List, and often referenced on freight or carrier clearance paperwork. Where you cannot see one, it is worth asking your supplier or carrier clearance team to confirm what has been agreed.
Can suppliers use different Incoterms?
Yes. Different suppliers, and even different shipments from the same supplier, may use different Incoterms. That is one of the reasons MarginMining reviews the Incoterm alongside your shipment evidence for consistency.