Part 4: How to Choose the Right Incoterm for Your Shipment | G&C Logistics

Part 4: How to Choose the Right Incoterm for Your Shipment

When moving goods internationally, few decisions impact cost, control, and risk more than the choice of Incoterms. Yet, this is one of the most misunderstood areas of global trade — and one of the most expensive to get wrong.

Choosing the right Incoterm isn’t just about who pays for freight. It defines where responsibility transfers, who manages customs formalities, who arranges insurance, and ultimately, how smoothly your shipment moves across borders.

In this guide, we’ll walk you through how to choose the right Incoterm for your shipment — with practical advice from a logistics perspective.

Step 1: Understand What You’re Really Deciding

Every Incoterm defines two key things:

  1. Who pays for what — from packaging and loading to freight, insurance, and delivery.
  2. Where the transfer of risk occurs — the point at which responsibility for the goods passes from seller to buyer.

If you only focus on cost, you risk choosing a term that saves a few dollars on paper but adds weeks of delays or hidden charges later.

Step 2: Consider Your Level of Control

Think about how much control you want over the shipment.

  • Buyers who want full control often choose terms like EXW (Ex Works) or FCA (Free Carrier) — they manage pickup, freight, and insurance directly.
  • Sellers who prefer to control shipping may use CIF (Cost, Insurance & Freight) or CIP (Carriage & Insurance Paid To) — they handle logistics up to the destination port.

💡 Tip: The more control you have, the more responsibility you bear. Match your team’s logistics capabilities with your chosen term.

Step 3: Factor in Transportation Mode

Not all Incoterms apply to every mode of transport.

  • Sea freight only: FAS, FOB, CFR, CIF
  • All modes: EXW, FCA, CPT, CIP, DAP, DPU, DDP

If you’re shipping containers, FOB or CFR are usually better than FCA/FAS — which traditionally applies to bulk or non-containerized cargo.

Step 4: Balance Cost vs Risk

Choosing a term is a risk-cost trade-off.

Incoterm Who Pays Freight Where Risk Transfers Good For
EXW Buyer Seller’s facility Buyers with strong logistics networks
FOB Buyer Once goods are onboard vessel Sea freight, balanced control
CIF / CIP Seller At port but seller covers insurance When buyers want cost visibility
DAP / DDP Seller At named destination Door-to-door shipments, customer-focused delivery

Ask yourself:

“Am I comfortable managing this leg of transport and its risks?”

If not, choose a term that shifts that responsibility to the other party — even if it costs slightly more.

Step 5: Align with Your Trade Terms & Contracts

Your Incoterm should match what’s stated in your sales contract, purchase order, or letter of credit. A mismatch can cause major payment delays, especially for LC transactions.

Example:
If your LC requires an onboard bill of lading, FCA (with the 2020 update) is now preferred over FOB for containerized shipments.

Step 6: Leverage Your Logistics Partner

Even seasoned importers and exporters rely on freight forwarders and customs brokers for advice.

At G&C Logistics, we often help clients:

  • Evaluate Incoterms based on their supply chain setup,
  • Avoid hidden costs like terminal handling or insurance gaps, and
  • Simplify communication between buyers and sellers.

Choosing the right Incoterm isn’t just a legal decision — it’s a strategic one. With the right partner, you can protect margins, reduce delays, and build stronger supply chain relationships.

Key Takeaways

  • Always specify the version (e.g. Incoterms® 2020) in your contract.
  • Match your logistics capability to your responsibility level.
  • Review regularly — the “right” term can change as your trade lanes or volume grow.
  • When in doubt, ask — a small clarification today prevents costly disputes tomorrow.

Final Thought

Incoterms are more than a line on an invoice — they are the foundation of how global trade works. Understanding and choosing them correctly can mean the difference between profit and penalty.

If you’re unsure which Incoterm best fits your shipments, our G&C Logistics team is always ready to help assess your routes and recommend the most cost-effective, risk-balanced option for your business.