Advantages & Disadvantages of Incoterms

Written by jennifer vanbaren
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Advantages & Disadvantages of Incoterms
Incoterms are internationally recognised freight terms. (Comstock/Comstock/Getty Images)

Incoterms are terms relating to international trade that were created in 1936 by the International Chamber of Commerce. This organisation created these 13 terms to offer a way for all companies in all countries to bridge the gap between language barriers. Incoterms are designed to allow all companies shipping and buying internationally to understand the terms of shipment regardless of the language the terms are in. The definitions of these terms have been modified several times throughout the years, with the last modifications made in 2010.

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Same Meaning

The main advantage of Incoterms is that they offer a way for all companies to use the terminology, allowing all businesses to understand their meaning. These terms help shippers and buyers understand the different types of situations involving shipments of goods. Incoterms allow buyers and shippers to understand who holds title to the goods at each stage of shipment, as well as who pays for shipping costs. This advantage helps companies avoid misunderstandings during all types of international shipping activities.


The meanings of many Incoterms have changed over the years. One disadvantage is that many companies may not keep up with every modification that takes place. This can leave certain companies at an advantage, and yet others at a disadvantage.

Preference Differences

Another issue with Incoterms is that shipping companies and buyers both have different preferences regarding which terms to use. Sellers often choose CIF because they hold a better grasp on their shipments; buyers often choose FOB for the same reasons. These two types are the most commonly used Incoterms. This issue can be viewed as an advantage or disadvantage depending on the perspective.


Another disadvantage of Incoterms is that many shipping companies try to benefit from them. They will often quote shipments using one method and purchases using another. The reason for this is to save money and to gain more control over the goods.

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