Procurement Glossary
Incoterms: International trade clauses for Procurement
November 19, 2025
Incoterms are internationally standardized trade clauses that regulate the rights and obligations between buyer and seller in cross-border transactions. They precisely define who is responsible for transportation, insurance and risk bearing. For buyers, they are indispensable for calculating costs and minimizing risk. Find out below what Incoterms are, which methods are used and how current developments influence international trade.
Key Facts
- Incoterms are revised by the International Chamber of Commerce (ICC) every ten years
- The current Incoterms 2020 include eleven different clauses for sea and land transportation
- They exclusively regulate delivery and risk assumption, not transfer of ownership or terms of payment
- Incorrect choice of Incoterms can lead to unexpected additional costs of 5-15% of the value of the goods
- EXW and DDP represent the two extremes of responsibility distribution
Contents
Definition: Incoterms
Incoterms (International Commercial Terms) are standardized contractual clauses that have been developed by the ICC since 1936. They create legal certainty in international trade through uniform regulations.
Basic categories and structure
The eleven Inkoterms 2020 are divided into four main groups:
- E-Group: EXW (Ex Works) - minimum seller obligations
- F-group: FCA, FAS, FOB - main transportation by buyer
- C-Group: CPT, CIP, CFR, CIF - Seller organizes transport
- D-Group: DAP, DPU, DDP - maximum seller obligations
Incoterms vs. other trade clauses
In contrast to national trade clauses, Incoterms offer global uniformity. They differ from delivery capability agreements in that they focus on risk-bearing rather than delivery times.
Importance of Incoterms in Procurement
For strategic Procurement , Incoterms enable precise cost calculation and risk management. They directly influence procurement logistics and are crucial for supply chain law compliance.
Methods and procedures
The systematic selection and application of Incoterms requires a structured approach. Various analysis methods support buyers in the optimal choice of clause.
Incoterms selection matrix
A proven method is the evaluation matrix with criteria such as transportation costs, risk tolerance and logistical competence. Factors are weighted and various Inkoterms options are evaluated.
- Cost transparency and budget planning
- Internal logistics capacities and expertise
- Risk profile and insurance costs
- Supplier relationships and negotiating power
Total cost of ownership analysis
The TCO analysis takes into account all hidden costs of various Incoterms. In addition to the value of goods, transportation, insurance and handling costs are also included. This method supports the procurement strategy by providing a sound basis for decision-making.
Risk assessment and compliance check
Systematic risk analysis identifies potential weaknesses in various Incoterms. Compliance checks ensure that selected clauses comply with internal purchasing guidelines and legal requirements.
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Key figures for controlling Inkoterms
Effective Inkoterms management requires meaningful KPIs to evaluate cost efficiency and risk management. These KPIs enable data-based optimization.
Key cost figures and TCO metrics
The total costs of various Incoterms are analyzed using specific cost indicators. Transportation costs, insurance costs and handling costs are systematically recorded and compared.
- Share of transportation costs in the value of goods (% per incoterm)
- Average processing time by Incoterms category
- Insurance cost ratio with different risk-bearing capacities
Risk and compliance indicators
Risk indicators measure the effectiveness of Inkoterms selection. Damage rates, delays and compliance violations are evaluated by Inkoterms type. These metrics support supply chain resilience.
Efficiency and process metrics
Operational key figures evaluate the process efficiency of various Inkoterms. Throughput times, error rates and the degree of automation are incorporated into purchasing process optimization. Regular benchmarking identifies potential for improvement.
Risks, dependencies and countermeasures
Incorrect use of Incoterms can cause considerable financial and operational risks. Systematic risk management and preventive measures are therefore essential.
Cost risks and budget variances
Incomplete understanding of the Incoterms leads to unexpected additional costs. Especially with EXW and FCA, there are often hidden costs for export formalities and local transportation.
- Unexpected customs and clearance costs
- Insurance gaps with unclear risk assumption
- Currency risks for international transportation
Compliance and legal risks
Incorrect Incoterms can lead to breaches of contract and legal disputes. Deviations from compliance guidelines and inadequate documentation are particularly critical.
Minimize operational dependencies
Excessive dependence on supplier logistics for D-Group Inkoterms can lead to delivery bottlenecks. Diversification of transport routes and alternative delivery concepts reduce these risks. Regular review of the Inkoterms strategy ensures adaptability to changing market conditions.
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Practical example
A German mechanical engineering company purchases electronic components from Asia and has to decide between CIF Hamburg and DAP Werk. With CIF, the supplier bears the transportation costs and sea freight risk, while the buyer pays ex port. With DAP, the seller delivers to the factory, but bears higher costs. The TCO analysis shows: CIF costs 12% less, but requires own logistics capacities and customs clearance.
- Carry out a cost comparison of all Inkoterms options
- Honestly evaluate internal logistics capacities
- Consider risk tolerance and insurance costs
Trends & developments around Inkoterms
Digitalization and changing retail structures are shaping the further development of Incoterms. New technologies and sustainability requirements are influencing their practical application.
Digitalization and AI integration
Artificial intelligence is revolutionizing the selection of incoterms through automated cost analyses and risk assessments. AI in Procurement enables data-based decisions in real time.
- Automatic Inkoterms recommendations based on historical data
- Predictive analytics for transportation costs and risks
- Blockchain integration for transparent supply chains
Sustainability and ESG compliance
Environmental aspects are becoming increasingly important when choosing Incoterms. Companies increasingly prefer clauses that enable shorter transportation routes and lower CO2 emissions. This has a significant impact on supply chain visibility.
Regionalization and nearshoring
The trend towards nearshoring is changing the relevance of various Incoterms. Shorter delivery routes reduce complexity and make simpler clauses such as DAP more attractive than complex sea freight incoterms.
Conclusion
Incoterms are indispensable tools for professional procurement management in international trade. The right choice reduces costs, minimizes risks and creates planning security. Digitalization and sustainability requirements are changing their strategic application. Regular reviews and data-based optimization of the Inkoterms strategy ensure long-term procurement success.
FAQ
What are the main differences between the Inkoterms groups?
The E group (EXW) minimizes seller obligations, F group transfers main transport to buyer, C group lets seller organize transport but risk remains with buyer, D group maximizes seller responsibility until delivery. The further in the alphabet, the more responsibility the seller bears.
How do I choose the optimal Incoterms for my procurement?
Take your logistics capacities, risk tolerance and cost targets into account. If you have little logistics expertise, choose D-group Incoterms. For cost control and with in-house logistics expertise, F-group Inkoterms are often optimal. Always carry out a TCO analysis.
Which costs are not regulated by Incoterms?
Incoterms do not regulate terms of payment, transfer of ownership, product liability or warranty. Customs duties, taxes and official approvals must also be agreed separately. Contractual penalties and delivery times must also be defined.
How often should Incoterms agreements be reviewed?
Review Incoterms at least once a year or if there are significant changes in the supply chain. New ICC versions, changes in transportation costs or changes in internal capacities require adjustments. For critical suppliers, a semi-annual evaluation of Inkoterms efficiency is recommended.
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