How to Choose the Right Incoterms When Working with a Custom Steel Parts Supplier?

When I first started importing custom steel parts, I quickly learned that picking the wrong Incoterms could cause big problems—unexpected costs, shipping delays, and customs headaches.

The right Incoterms clearly define which party handles shipping, risk, customs, and insurance at each stage of delivery, helping avoid confusion and disputes.

Understanding Incoterms ¹ is key to smoother international transactions. With the right terms, both buyer and supplier can manage risk, costs, and timelines more effectively.

How do different Incoterms impact buyer and seller responsibilities?

Each Incoterm assigns different responsibilities to the buyer and the seller. Choosing the wrong one can shift unexpected risk or costs to the wrong party.

Incoterms impact who is responsible for transportation, customs clearance, insurance, and risk transfer during shipment, affecting cost and accountability throughout the supply chain.

Here’s a breakdown of how responsibility is divided:

🔄 Incoterms Responsibilities Comparison

The farther along the supply chain the seller’s responsibility goes, the easier it is for the buyer—but often at a higher cost.

Which Incoterms are best for first-time transactions?

First-time buyers often face challenges navigating customs, logistics, and risks. Choosing complex terms like EXW without local support may increase stress and errors.

For first-time transactions, DAP (Delivered at Place) and CIF (Cost, Insurance, and Freight) are recommended because they simplify logistics and reduce risk for buyers.

DAP allows the supplier to manage most of the process and deliver directly to the buyer's address, while CIF covers ocean freight and basic insurance ², handing over control at the destination port.

🛠️ Recommended Incoterms for New Buyers

Buyers should be aware that CIF and CIP only cover minimum insurance by default. If higher coverage is needed, it must be stated clearly in the contract.

How to clearly define the chosen Incoterms in the contract?

Misunderstandings often happen when Incoterms are used without specifying the delivery location, leading to disputes over responsibility and cost.

Incoterms must be clearly defined in the contract using the correct term and a specific named location, such as “DAP – Buyer’s Warehouse, Houston, USA.”

This reduces confusion and helps logistics teams on both sides plan accordingly. Use the following format:

📋 Incoterm Contract Format Example

Using vague terms like “CIF – USA” can cause major delays or delivery to the wrong port. Always name the specific destination.

How does selecting specific Incoterms affect shipping costs?

The choice of Incoterms changes how much logistics work and risk is handled by each party—and that changes the price the supplier quotes.

Incoterms where the seller handles shipping (like CIF or DDP) often lead to higher product prices due to logistics and insurance costs bundled in.

While these terms offer convenience, they may limit cost transparency. The buyer cannot control freight providers or negotiate better shipping rates ³.

💸 Shipping Cost Impact by Incoterm

Buyers with strong freight partners may prefer EXW or FOB to save cost. Those with limited logistics experience may find DDP more efficient despite the cost.

Conclusion

Choosing the right Incoterms is about balancing control, cost, and risk. A well-chosen term simplifies the process and protects both parties from unexpected issues.

Footnotes