Incoterms Explained: Why They Are Critical in International Trade
What Are Incoterms and Why Do They Matter?
In international trade, even a small inaccuracy in a contract can lead to major financial losses, shipment delays, or legal disputes. To prevent misunderstandings between sellers and buyers, the International Chamber of Commerce (ICC) developed Incoterms (International Commercial Terms)—a globally recognized set of rules that clearly define responsibilities during the delivery of goods.
Incoterms specify:
- Transfer of risk
- Responsibility for transportation
- Export and import customs clearance
- Insurance obligations
- Cost allocation between buyer and seller
They do not regulate ownership or payment terms, but they form the foundation of transparent, predictable international cooperation.
Overview of the Main Incoterms
EXW — Ex Works
The seller makes goods available at their premises. The buyer assumes all responsibility for loading, export clearance, transportation, and risk from that point onward.
FCA — Free Carrier
The seller delivers goods to a carrier nominated by the buyer and completes export customs clearance. FCA is widely used in B2B trade because it clearly separates export and transport responsibilities.
CPT — Carriage Paid To
The seller pays for transportation to the agreed destination, but risk transfers to the buyer once the goods are handed to the first carrier.
CIP — Carriage and Insurance Paid To
Similar to CPT, but the seller also arranges and pays for cargo insurance. Often used for high-value or sensitive goods.
DAP — Delivered At Place
The seller delivers goods to a named place in the buyer’s country. Import duties and taxes are paid by the buyer. Risk remains with the seller until arrival.
DPU — Delivered at Place Unloaded
The seller is responsible for delivering and unloading the goods at the destination. This term requires careful planning of unloading capabilities.
DDP — Delivered Duty Paid
The seller bears maximum responsibility, including import duties, taxes, and VAT. Due to regulatory complexity, this Incoterm is used less frequently in international cosmetics trade.
Maritime Incoterms (Sea Freight Only)
- FOB (Free On Board): Risk transfers once goods are loaded onto the vessel
- CFR (Cost and Freight): Seller pays freight; risk transfers at the port of shipment
- CIF (Cost, Insurance and Freight): Same as CFR, but includes cargo insurance
These terms apply only to ocean freight.
Which Incoterms We Use for Exporting Cosmetics from Korea
To ensure smooth logistics and full compliance with South Korean export regulations, we use the following Incoterms:
- FCA — When buyers arrange international transport independently and we handle export customs clearance in Korea
- DAP — When delivery costs are included in the invoice (e.g. FedEx air delivery) and goods are delivered directly to the buyer’s address; import duties and taxes are paid by the buyer
- CPT / CIP — When transportation is arranged to the airport or seaport in the buyer’s country, with CIP additionally including cargo insurance
This flexible approach allows us to adapt delivery terms to each client’s needs while maintaining transparency and regulatory compliance.
📩 For logistics-related inquiries: info@k-skin-wholesale.com
Summary
Incoterms are essential tools in international trade, defining responsibilities, costs, and risk transfer between buyers and sellers. Choosing the right Incoterm helps prevent disputes, control logistics, and ensure smooth cross-border transactions—especially in regulated industries like cosmetics.
