Incoterms

Incoterms, or International Commercial Terms, are internationally standardized trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers for the delivery, insurance, and customs clearance of goods. These three-letter codes establish clear rules regarding who pays for shipping, who assumes risk during transit, and who handles export/import formalities. The current version, Incoterms 2020, includes 11 different terms applicable to various modes of transportation.

Why it matters for e-commerce brands

For Shopify and DTC merchants selling internationally, understanding Incoterms is crucial to avoid unexpected costs and disputes with customers or suppliers. Choosing the wrong Incoterm can leave your brand liable for customs duties, shipping damage, or delays that you hadn't budgeted for, directly impacting your profit margins. Clear Incoterm agreements also help you accurately quote shipping costs to international customers and set proper expectations about delivery responsibilities.

Example

A Shopify apparel brand in Los Angeles ships products to a customer in Germany using DAP (Delivered at Place) terms. Under DAP, the brand is responsible for all shipping costs and risks until the goods arrive at the customer's address in Berlin, but the customer must pay any import duties and taxes. If the brand had instead used DDP (Delivered Duty Paid), they would be responsible for paying German customs duties and VAT, which would need to be factored into the product pricing. Many DTC brands prefer FOB (Free on Board) when working with overseas manufacturers, meaning their responsibility and costs begin once goods are loaded onto the shipping vessel at the origin port.

Related terms

• Freight forwarder
• Customs broker
• Bill of lading
• Landed cost
• Duties and tariffs