The impact of incoterms on supply chain financial performance

The impact of International Commercial Terms (Incoterms) on the performance of the financial supply chain is examined in this qualitative study, which focuses on three often used terms: Free on Board (FOB), CIF (Cost, Insurance, and Freight), and EXW (Ex Works). In international trade, Incoterms which are standardized by the International Chamber of Commerce's (ICC) Incoterms 2020 framework are crucial for outlining the obligations, expenses, and risk allocation between buyers and sellers. This study's main goal is to investigate the financial results and cost implications of using EXW, FOB, and CIF terms. Specifically, it aims to understand how these Incoterms affect the transaction costs. The study focuses on companies located in Johor, Malaysia, a key industrial and trading region, to gather contextual insights from professionals actively engaged in import and export operations. Data was collected through interviews session with logistics managers, supply chain officers, and directors. The findings indicate that improper or uninformed selection of Incoterms often leads to financial inefficiencies, including longer payment cycles, higher costs, and misallocated responsibilities. This research offers valuable recommendations to help organizations make informed Incoterms choices, strengthen collaboration between logistics and finance departments, and enhance financial performance through better risk and cost management in the supply chain.