Incidences may appear like yet another language to new people in international trade. The three letter words, FOB, CIF or DDP, have a lot of weight to them. These are what determines who is paying shipping, who is assuming the risk and who is in charge at each point of shipment. These rules are necessary in 2025 as the global supply chains will be smarter and more complex. However, they are also one of the most misconstrued points of the international contracts.
Why Do Incoterms Still Matter?
Prepared by the International Chamber of Commerce (ICC), Incoterms (International Commercial Terms) are a standard set of rules that regulate the buying and selling duties. They specify who takes care of freight, insurance, custom duties and shifting of risks. They develop trust and clarity when they are applied well. Misused, they lead to confusion, losses of money and even legal battles.
The Trade Finance Global 2025 report shows that one of the top five causes of international trade conflicts in this year is poor Incoterm application. The good news? The majority of errors can be prevented by a little knowledge and paying attention to the contract writing.
Mistake 1: Mode of Transport The mode of transport is an error
The most frequent error is the use of terms used at sea such as FOB (Free on Board) or CIF (Cost, Insurance and Freight) when handling road, rail, or air shipments. These words were developed with the purpose of freight over ocean or inland waterway.
To give an example, it is not practically viable to write FOB Shanghai to ship an air shipment, there is no rail of the ship against which the risk can be transferred. Not only is it wrong, but can result in great confusion as to liability in case pre-departure damages are incurred.
Fixing it: In the case of containerized or multimodal transport, use FCA (Free Carrier), CPT (Carriage Paid To), or CIP (Carriage and Insurance Paid To). They are in a better position to fit the current logistics models.
Mistake 2: Not specifying the place of delivery
Such vague expressions as the one, Delivered in Hamburg, or FOX China FOB are okay in a contract, but produce colossal ambiguity. Destinations and ports are usually packed with two or more terminals and depots and without a given name under which they are officially assigned, the question of where the responsibility and risks actually changed hands.
Wrong or incomplete location naming, according to WTA Group logistics report (July 2025), is a leading three-way cause of shipment delays across the globe.
Fix me: It is important to always mention the exact delivery point. Examples: CPT Hamburg Terminal 3 (Incoterms 2020)
DAP Shenzhen Logistics Hub (Incoterms 2020)
Specificity makes a carrier, insurers, and even the customs offices transparent.
Mistake 3: Risk versus Ownership
It is the false assumption of many traders that Incoterms are involved in the transfer of ownership, either. Incoterms clarify the people who assume the risk of the loss or damage and not the ownership of the goods. The transfer of ownership is dependent on everything written in the sale contract.
In the case of FOB, i.e. the goods are loaded and the ownership is transferred, but the goods actually owned may not be until the money is collected. The confusion of these notions results in disputes in case of claims or losses.
Remedy: Separate the functions of risk transfer and title transfer (Incoterms and sales terms). Make both of these points clear in your contract.
Mistake 4: Incorrect understanding of Customs Responsibilities
Customs formalities may easily be the thorn in the flesh when the roles are not defined properly. The most common assumption of many novices is that the buyer and seller automatically clear imports and exports respectively but this is not always the case.
Within FCA, the seller has to take care of the export clearance, as an example. They forget or the buyer has falsely assumed that it is his responsibility, then the goods will be stuck up at the shipping port.
Fixing it: Read through the Incoterm and devise a list of export and import paperwork filers. Use a customs broker where the trading within jurisdictions with elaborate clearance procedures.
Mistake 5: Too much dependence on DDP Without Knowing Local Rules
Delivered Duty Paid (DDP) sounds so convenient, and the seller does all the work including freight and duties. Still, it is not necessarily the most intelligent choice. Unless the sellers have local expertise, they encounter unforeseen taxes or fines when selling with DDP.
Some EU exporters also got into trouble in 2025 when covered by DDP-to-UK deals, with VAT registration and post-Brexit documentation being unexpected.
Corrective action: DDP should be used only when you are perfectly aware of how your goods are being imported to the destination or when you have an agent who has been licensed. In its place, DAP (Delivered at Place) is less risky and pushes the import processes to the purchaser.
Mistake 6: Overlooking Insurance Requirements
Another common issue is insurance control. The seller in CIF and CIP is supposed to furnish insurance- however most of them do not fulfill regulations. This is because the ICC rules from 2020 mandate coverage of goods value of CIP at least 110%. The insurances of the carriers are not very safe to use, as they have only a limited insurance on the damages of the cargo.
Remedy: Check policy cover. The sellers are supposed to match insurance with the 2025 standards of insurance of ICC and the buyers are to demand a copy of the certificate of insurance of the seller prior to payment.
Mistake 7: Ignoring Terminal Handling Charges
Terminal Handling Charges (THC) incurred on the unloading, loading, and storage of goods are the subject of innumerable grey area conflicts since the contracts usually do not specify who is paying the charges.
The Trade Finance Global 2025 Incoterm Audit revealed that 14% of shipments made to the world by container ships involved THC misunderstandings causing disputes.
Resolution: To end terminal fees in writing, particularly any CIF, CFR, and FOB. The fact eliminates the occurrence of unexpected invoices once the delivery is made.
Mistake 8: Working with Obsolete or Newer Versions
A lot of businesses continue to use Incoterms 2010 or earlier when they do not realize that significant changes were made in 2020, such as changing DAT (Delivered at Terminal) to DPU (Delivered at Place Unloaded). An outdated source may result in a misunderstanding in court or when enforcing customs.
Fixing it: For your contract, always specify the version, e.g. FCA, Incoterms 2020. Keep in touch through ICC bulletins or trade training courses.
Mistake 9: Disregard of the Local Trade Laws
Other nations such as India or Turkey require the seller to deal with export documentation despite the contractual obligation to the contrary. Failure to obey such local demands subjects traders to fines or violation of compliance.
Possible remedy: Work with a local logistic company, trade advisor, or law firm to ensure that local laws are met.
Mistake 10: Making the mistake of assuming that all understand terms in a similar way
The human error that might happen the most is miscommunication. The same Incoterm is sometimes understood differently by different companies, carriers and countries.
How to correct: Before signing a contract make sure that both parties understand each other, preferably doing it over a brief meeting or putting the point on paper.
Resolution: To end terminal fees in writing, particularly any CIF, CFR, and FOB. The fact eliminates the occurrence of unexpected invoices once the delivery is made.
Final Thoughts
Incoterms may appear as just abbreviations, but have some serious weight in international business. Under beginners the only rule of thumb is never to assume, always to specify, confirm and put on paper. It is not only the price of using such words wrongly but also the price of the reputation.
Learning Incoterms in the modern globalized world means not just being compliant but being confident. Once you are well aware of where your role starts and that of your partner, trade is a lot easier, quicker and much less stressful. And making it is well worth the homework.
