Incoterms® rules are standardized contract terms published by the International Chamber of Commerce (ICC). They allocate specified delivery responsibilities, costs and risks between buyer and seller. They do not determine every part of a sale contract, the product's tariff classification or the business's inventory accounting policy.
Use the rule, a precise named place or port, and the edition in the agreement. “FOB” alone leaves important location information unstated. The ICC's Incoterms 2020 reference describes eleven rules, with seven usable for any transport mode and four for sea or inland waterway transport.
FOB, CIF and DDP compared
| Rule | Practical distinction |
|---|---|
| FOB — Free On Board | A sea or inland waterway rule. Delivery and risk transfer occur when goods are aboard the vessel at the named shipment port. |
| CIF — Cost, Insurance and Freight | Also a sea or inland waterway rule. The seller arranges freight and required insurance to the named destination port, while delivery and risk transfer occur at shipment. |
| DDP — Delivered Duty Paid | The seller bears the agreed delivery obligations through the named destination, including import clearance. Delivery is on the arriving transport, ready for unloading. |
Cost responsibility and risk transfer can occur at different places. Paying for freight to a destination does not necessarily mean retaining transit risk until arrival. The ICC explains FOB's delivery point and DDP's destination and clearance responsibilities. Review the actual contract and insurance coverage when resolving a loss; an Incoterm label alone does not settle fault, coverage or a claim.
Landed cost includes each cost once
Landed cost combines the acquisition charges that belong to the item under the accounting policy. A supplier's quote may bundle some of those charges. Identify what is included before adding separate freight, insurance, handling or import charges.
Neither FOB nor EXW means that your total landed cost is just the goods' invoice price. CIF does not mean that import duty is included. DDP does not establish that there can be no additional buyer-side costs, such as unloading or separately agreed services.
An illustrative comparison for 100 units:
| Charge | Quote A, goods and freight billed separately | Quote B, freight included |
|---|---|---|
| Supplier invoice | $2,000 | $2,250 |
| Separate freight | $250 | $0 |
| Assumed eligible import and handling charges | $150 | $150 |
| Total acquisition cost | $2,400 | $2,400 |
| Cost per unit | $24 | $24 |
The identical total depends on these assumed inclusions; it is not a current tariff quote or a standard cost for any Incoterm. Confirm classification, origin, value and charges with the responsible customs and accounting specialists for the actual shipment.
What to put on the purchase order
Record the agreed rule and edition, named location, product specifications, quantities, price, payment terms and who supplies transport documents. Ask the supplier to confirm any change to the destination, shipping arrangement or included charges. Preserve the original and accepted change so the buyer can compare like-for-like quotes.
At receipt, capture quantity, visible condition and the delivery documents. Record damage promptly through the agreed process. Keep the purchase order, shipment, receiving evidence and any carrier or insurer correspondence connected; do not assume that all shortages under one rule have the same cause or remedy.
Where LineNow helps
LineNow connects purchase orders, supplier replies, receiving and accounting handoff, and supports allocation of order charges. In a demonstration, show the agreed shipping term in the record, a separate freight bill and a partial receipt. Verify whether your required shipping fields and any customs or forwarding integration are supported in the proposed configuration.
This provides a purchasing record for the responsible team to review. Customs filing, insurance coverage decisions and legal dispute resolution remain distinct requirements.