Understanding Incoterms 2025: What Every Shipper Needs to Know

In the world of global freight forwarding and international trade, Incoterms are the standardized rules that define the responsibilities of buyers and sellers for the delivery of goods. With the 2025 update now live, understanding Incoterms is essential for shippers looking to avoid costly misunderstandings, streamline cross-border transactions, and mitigate risk.

At Advanced International Freight, we help our clients navigate the complexities of shipping across borders every day—and Incoterms are a key piece of the equation.

What Are Incoterms?

"Incoterms" stands for International Commercial Terms, a set of standardized trade terms published by the International Chamber of Commerce (ICC). These rules outline who is responsible for transportation, insurance, customs clearance, and risk transfer at each stage of the shipping process.

The goal of Incoterms is to eliminate confusion in cross-border sales contracts by clearly defining:

• When responsibility for the goods transfers from seller to buyer

• Who pays for freight, insurance, duties, and other logistics costs

• Which party handles export and import formalities

What's New in Incoterms 2025?

While the core concepts of Incoterms remain the same, the 2025 edition introduces clarifications and refinements that reflect evolving global shipping practices.

Key updates include:

• Greater clarity on security obligations, especially around port and terminal procedures

• Digital documentation provisions to reflect the growth in eB/Ls and digital trade platforms

• Updated guidance on FCA and FOB, particularly for multimodal shipments where port handling is split

• Enhanced focus on sustainability and risk transfer in cases of environmental disruption

If your business is involved in any international shipments, reviewing and updating your contracts to reflect the 2025 changes is critical.

Quick Overview of Incoterms 2025 Categories

Incoterms are divided into two main categories:

1. Rules for Any Mode of Transport

• EXW (Ex Works): Buyer takes on nearly all responsibility from the seller’s premises.

• FCA (Free Carrier): Seller delivers goods to a carrier named by the buyer.

• CPT (Carriage Paid To): Seller pays freight to destination but risk transfers earlier.

• CIP (Carriage and Insurance Paid To): Like CPT, but with seller responsible for insurance.

• DAP (Delivered at Place): Seller handles most costs and risks until goods arrive.

• DPU (Delivered at Place Unloaded): Seller pays for unloading at named destination.

• DDP (Delivered Duty Paid): Seller takes on all costs and risk, including duties and taxes.

2. Rules for Sea and Inland Waterway Transport Only

• FAS (Free Alongside Ship): Seller delivers when goods are placed alongside the vessel.

• FOB (Free On Board): Seller’s risk ends once goods are loaded on the vessel.

• CFR (Cost and Freight): Seller pays for transport but not insurance.

• CIF (Cost, Insurance, and Freight): Seller pays for transport and insurance.

How to Choose the Right Incoterm

Choosing the right Incoterm depends on several factors:

• Mode of Transport: Use marine-specific terms like FOB or CIF for ocean freight only.

• Control and Risk: Consider how much control each party wants over the shipping process.

• Cost Allocation: Determine who should be responsible for freight, insurance, and customs duties.

• Geographical Reach: Understand customs complexities and infrastructure in the destination country.

At Advanced International Freight, we assist clients in selecting the best Incoterm for each transaction to minimize risk, reduce cost, and streamline documentation.

The Role of Incoterms in Mitigating Disputes

One of the most valuable roles of Incoterms is preventing disputes between buyers and sellers. When both parties understand their responsibilities upfront, there is less chance of disagreement over:

• Who pays demurrage charges

• Who is liable for damage during transit

• Who handles customs documentation and fees

• What happens in the event of delays

That’s why we strongly recommend our clients always include the correct Incoterm in their commercial contracts and clearly document it on invoices, bills of lading, and purchase orders.

Partnering with a Freight Expert for Incoterm Compliance

Correct application of Incoterms is more than just choosing three letters—it involves understanding the full scope of responsibility, risk, and compliance required for international shipping. Mistakes can lead to customs delays, financial losses, or legal conflicts.

At Advanced International Freight, our team works closely with importers, exporters, and freight managers to ensure Incoterms are properly used, especially as new rules evolve in 2025 and beyond.

Final Thoughts

Incoterms are essential tools for structuring international shipping agreements. Whether you’re exporting machinery from Korea, importing apparel from Mexico, or distributing products domestically after clearance, knowing which Incoterm applies—and applying it correctly—is vital to reducing liability and optimizing supply chain performance.

Need help choosing the right Incoterm for your next shipment? Contact Advanced International Freight for a strategic consultation.