Inventory glossary

What is Incoterms?

Incoterms are a standard set of trade terms that define who pays for shipping, insurance and customs, and at what point the supplier's responsibility for goods ends and the buyer's begins.

Incoterms decide how much of the shipping, insurance and customs work and cost falls on you versus your supplier. Picking the wrong term can mean a surprise customs bill or a shipment stuck at the border because nobody arranged clearance.

Check the Incoterm on every supplier quote before comparing prices. A low unit price under EXW terms can end up costing more than a higher price under DDP once you add freight, duties and your own time arranging transport.

Example

A candle shop owner orders 500 jars from a supplier in China. Under FOB terms, the supplier's price of 2 dollars per jar covers getting the goods onto the ship at the origin port. The store owner then pays separately for ocean freight, insurance and customs clearance to get the jars to her warehouse, which adds 0.60 dollars per jar. Her true landed cost is 2.60 dollars per jar, not 2 dollars.

Common mistakes

  • Assuming the quoted unit price is the full cost, when EXW or FOB terms leave out freight, insurance and duties.
  • Not knowing who is responsible for insurance if goods are lost or damaged in transit.
  • Confusing Incoterms with payment terms like Net 30, which are separate agreements about when you pay, not who handles shipping.

Incoterms and SteadyShelf

SteadyShelf does not calculate landed cost, but knowing your Incoterms helps you set a realistic supplier lead time, since FOB and EXW shipments take longer to arrive than DDP ones.

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Related terms

Lead time · FOB shipping · EXW shipping · DDP shipping · Landed cost

Full inventory glossary

FAQ

Does FOB mean the supplier pays for everything until it reaches my store?

No. FOB means the supplier's cost quote stops when goods are loaded on the ship or truck at origin. You still need to budget for freight, insurance, duties and customs clearance to get the real landed cost per unit.

What does DDP mean for a small store owner?

DDP shipping means the supplier delivers goods to your door with duties and taxes already paid. You pay one all-in price per unit with no separate customs bill.

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