What are Incoterms?
Incoterms (International Commercial Terms) are international rules published by the International Chamber of Commerce (ICC) that govern obligations, costs and risks in international trade between seller and buyer.
The current version is Incoterms 2020, in force since January 1, 2020. It defines 11 terms grouped by mode of transport and level of responsibility of each party.
Incoterms govern:
- ✓ Who pays for transport and which leg
- ✓ Who arranges cargo insurance
- ✓ Who handles export and import customs clearance
- ✓ At which point risk of damage or loss transfers
- ✓ Who delivers documents to whom
They DO NOT govern: price, payment terms, ownership transfer, or applicable jurisdiction. Those belong in the commercial contract.
Classification of the 11 Incoterms 2020
Incoterms 2020 are split into two groups by mode of transport:
For any mode of transport
- EXW – Ex Works (Ex Works)
- FCA – Free Carrier (Free Carrier)
- CPT – Carriage Paid To (Carriage Paid To)
- CIP – Carriage and Insurance Paid To (Carriage and Insurance Paid To)
- DAP – Delivered At Place (Delivered At Place)
- DPU – Delivered at Place Unloaded (Delivered at Place Unloaded)
- DDP – Delivered Duty Paid (Delivered Duty Paid)
For sea and inland waterway transport only
- FAS – Free Alongside Ship (Free Alongside Ship)
- FOB – Free On Board (Free On Board)
- CFR – Cost and Freight (Cost and Freight)
- CIF – Cost, Insurance and Freight (Cost, Insurance and Freight)
For containerized cargo (FCL/LCL), the ICC recommends using FCA, CPT, CIP instead of FOB, CFR, CIF.
Incoterms 2020 comparison table
| Incoterm | Mode | Seller's risk | Risk transfer point |
|---|---|---|---|
| EXW | Any | Seller low | When goods are made available at seller premises. |
| FCA | Any | Seller low | Upon loading on buyer's transport or delivery to carrier at agreed place. |
| FAS | Maritime | Seller med-low | When goods are placed alongside the vessel. |
| FOB | Maritime | Seller medium | Once loaded on board at origin port. |
| CFR | Maritime | Seller med-high | Once loaded on board at origin port (same as FOB). |
| CIF | Maritime | Seller high cost | Once loaded on board at origin port. |
| CPT | Any | Seller med-high | Upon delivery to the first carrier at origin. |
| CIP | Any | Seller high cost | Upon delivery to the first carrier at origin. |
| DAP | Any | Seller high | At the agreed destination place, before unloading. |
| DPU | Any | Seller high | Once unloaded at the agreed destination place. |
| DDP | Any | Seller maximum | Once delivered at final destination, ready to unload. |
Detail of each Incoterm 2020
EXW
Ex Works · Ex WorksThe seller makes goods available at their premises. The buyer bears all costs and risks from pickup to final destination.
Seller covers:
Make goods available at factory/warehouse
Buyer covers:
Pickup, export clearance, freight, import, final delivery
When to use it: Sellers with little export experience. Buyers with their own logistics network.
FCA
Free Carrier · Free CarrierThe seller delivers the goods, cleared for export, to the carrier nominated by the buyer at the agreed place.
Seller covers:
Export clearance, delivery to carrier
Buyer covers:
Main freight, insurance, import clearance, final delivery
When to use it: The most versatile. Replaces FOB in modern containerized operations.
FAS
Free Alongside Ship · Free Alongside ShipThe seller delivers the goods alongside the vessel nominated by the buyer at the port of shipment.
Seller covers:
Inland transport + dock delivery + export clearance
Buyer covers:
Ship loading, freight, import clearance, final delivery
When to use it: Bulk or oversized cargo that does not fit in a container.
FOB
Free On Board · Free On BoardThe seller delivers the goods loaded on board the vessel nominated by the buyer. Risk transfers when crossing the ship's rail.
Seller covers:
Up to loading on board + export clearance
Buyer covers:
Main freight, insurance, import clearance, final delivery
When to use it: Traditional for bulk maritime cargo. For containers, FCA is recommended.
CFR
Cost and Freight · Cost and FreightThe seller pays maritime freight to destination port, but risk transfers to buyer when loading at origin.
Seller covers:
Up to destination port (pays freight) + export clearance
Buyer covers:
Cargo insurance, destination unloading, import, final delivery
When to use it: When the buyer prefers to arrange insurance independently.
CIF
Cost, Insurance and Freight · Cost, Insurance and FreightThe seller pays freight and minimum insurance to destination port. Risk transfers when loading at origin.
Seller covers:
Maritime freight + minimum insurance + export clearance
Buyer covers:
Destination unloading, import clearance, final delivery
When to use it: Buyers who want freight and insurance included in the price.
CPT
Carriage Paid To · Carriage Paid ToEquivalent to CFR but for any mode of transport. Seller pays freight to the agreed place.
Seller covers:
Freight to destination + export clearance
Buyer covers:
Insurance, import clearance, final delivery
When to use it: Air, land or multimodal containerized operations.
CIP
Carriage and Insurance Paid To · Carriage and Insurance Paid ToEquivalent to CIF for any mode. Seller pays freight + COMPREHENSIVE insurance to destination.
Seller covers:
Freight + comprehensive insurance + export clearance
Buyer covers:
Import clearance, final delivery
When to use it: Air, land or multimodal when seller covers full insurance.
DAP
Delivered At Place · Delivered At PlaceThe seller delivers the goods at the agreed destination place, ready for unloading.
Seller covers:
All costs and risks to destination (excluding unloading)
Buyer covers:
Import clearance, unloading, final delivery
When to use it: The seller controls the entire international logistics operation.
DPU
Delivered at Place Unloaded · Delivered at Place UnloadedThe only Incoterm where the seller unloads the goods at destination. Replaced the former DAT in Incoterms 2020.
Seller covers:
All costs and risks to destination + unloading
Buyer covers:
Import clearance, delivery from unloaded point
When to use it: When the seller has means to unload at destination.
DDP
Delivered Duty Paid · Delivered Duty PaidThe seller assumes ALL costs and risks: freight, insurance, customs clearance, duties and final delivery.
Seller covers:
All costs and risks to final delivery, including import clearance
Buyer covers:
Just receives the goods
When to use it: Buyers who want an "all-inclusive" price.
FOB vs CIF vs DAP: which one suits you?
| Your situation | Recommended Incoterm |
|---|---|
| You import from China and want to control freight with your own forwarder | FOB / FCA |
| First-time importer wanting a closed rate to destination port | CIF / CIP |
| You want the seller to deliver to your warehouse cleared | DDP |
| Delivery to your place but you handle import yourself | DAP / DPU |
| Air or land cargo with insurance included | CIP |
| Bulk maritime cargo (non-containerized) | FAS / FOB / CFR / CIF |
What changed in Incoterms 2020 vs 2010?
- 1.DAT (Delivered At Terminal) was renamed to DPU (Delivered at Place Unloaded), clarifying delivery can be at any place.
- 2.CIP now requires COMPREHENSIVE insurance (Clause A), not minimum coverage as before. CIF keeps minimum coverage.
- 3.FCA allows the buyer to instruct the carrier to issue an "on board" Bill of Lading for letter-of-credit purposes.
- 4.Security-related obligations across the supply chain were clarified.
- 5.DAP, DPU and DDP now allow the buyer to arrange transport without third parties.
