Incoterms: Common Mistakes that Generate Unexpected Costs in International Trade
In international trade, Incoterms play a fundamental role in defining the responsibilities between seller and buyer in the transportation of goods.
Created by the International Chamber of Commerce (ICC), Incoterms establish clear rules regarding the allocation of costs, risks and logistical responsibilities throughout an import or export operation.
Despite being widely used in global trade, their incorrect application remains one of the most frequent causes of unexpected costs, operational delays and disputes between the parties involved.
The correct choice and application of an Incoterm should consider not only the commercial agreement between buyer and seller, but also the specific characteristics of the logistics operation, the type of transport involved and the regulatory requirements applicable in each country.
When these variables are not properly considered, small mistakes can translate into significant financial impacts.
Why Incoterms Are So Important
Incoterms define, in a standardized way, essential aspects of an international logistics operation, such as:
who assumes the transportation costs;
who is responsible for cargo insurance;
at which point the transfer of risk between seller and buyer occurs;
who handles export or import customs procedures.
Without this clear definition, different interpretations may arise between the parties, generating conflicts or unexpected additional costs.
For this reason, the correct use of Incoterms is a key component of risk management in international trade.
Mistake 1: Using EXW Without Considering Export Obligations
The Incoterm EXW (Ex Works) is often used by exporters who wish to limit their logistical responsibilities.
However, in practice, this term may create significant operational challenges.
When a shipment is conducted under EXW, the buyer assumes almost all logistical responsibilities, including transportation, export clearance and customs procedures.
In many countries, only a locally established entity can perform the export customs declaration, which can make EXW difficult or even impractical to execute.
As a result, the seller often ends up assuming additional responsibilities that were not initially planned.
Mistake 2: Using FOB in Non-Maritime Transport
Another common mistake occurs when the Incoterm FOB (Free On Board) is used in operations that do not involve maritime transport.
FOB was designed specifically for sea or inland waterway transport and assumes that the transfer of risk occurs once the goods are loaded onto the vessel.
However, in practice, this Incoterm is frequently used in air or road transport operations, which can create ambiguity regarding the exact moment when risk is transferred.
In such cases, terms such as FCA (Free Carrier) may be more appropriate, ensuring greater clarity in the allocation of responsibilities.
Mistake 3: Using DDP Without Understanding All Responsibilities
The Incoterm DDP (Delivered Duty Paid) represents the highest level of responsibility for the seller.
Under this term, the seller assumes almost all costs and risks related to the operation, including transportation, customs duties, taxes and import procedures in the destination country.
Although it may appear to be a simple solution for the buyer, this Incoterm can create significant risks for the seller, especially when complex fiscal or customs requirements exist in the destination country.
In some cases, the seller may even need a fiscal registration in the importing country to comply with certain obligations.
Without proper prior analysis, DDP can quickly become a source of unexpected costs.
The Importance of Proper Logistics Analysis
Choosing the correct Incoterm should always be analysed within the specific context of each logistics operation.
Factors such as the mode of transport, the country of origin and destination, customs requirements and the experience of the parties involved can significantly influence the most appropriate choice.
A correct definition from the outset of the operation helps avoid ambiguity, reduce risks and ensure greater predictability in international supply chains.
At NVOxpress, each operation is analysed in an integrated manner, considering not only transportation but also the associated documentary, regulatory and customs framework.
In an increasingly complex global trade environment, understanding and correctly applying Incoterms is essential to prevent unexpected costs and ensure efficient logistics operations.
