Incoterms are the globally recognised rules defining the responsibilities of buyers and sellers in international trade. Published by the International Chamber of Commerce, Incoterms 2020 covers 11 trade terms that determine who arranges transport, pays for insurance, handles customs, and at what point risk transfers from seller to buyer.
Why Incoterms Matter
Using the wrong incoterm — or leaving it unspecified — can expose your business to unexpected costs, legal disputes, and insurance gaps. Getting incoterms right from the outset saves money, prevents disputes, and ensures everyone knows their responsibilities.
Rules for Any Mode of Transport
- EXW (Ex Works) — Maximum buyer responsibility. Seller makes goods available at their premises. Buyer bears all costs and risks including export clearance.
- FCA (Free Carrier) — Seller delivers to a named carrier nominated by the buyer. Risk transfers when goods are handed to the carrier.
- CPT (Carriage Paid To) — Seller pays for carriage to the named destination, but risk transfers to buyer when goods reach the first carrier.
- CIP (Carriage and Insurance Paid To) — Like CPT but seller also provides all-risk cargo insurance (ICC A minimum under Incoterms 2020).
- DAP (Delivered at Place) — Seller delivers to the named destination ready for unloading. Buyer handles import clearance and duties.
- DPU (Delivered at Place Unloaded) — Seller delivers and unloads at the named destination. Buyer handles import clearance.
- DDP (Delivered Duty Paid) — Maximum seller responsibility. Seller handles all costs including export clearance, carriage, import duties, and delivery.
Rules for Sea and Inland Waterway Only
- FAS (Free Alongside Ship) — Seller delivers alongside the vessel at the named port.
- FOB (Free on Board) — Seller loads goods onto the vessel. Buyer pays freight and import clearance.
- CFR (Cost and Freight) — Seller pays freight to the destination port. Risk transfers at origin when goods are loaded.
- CIF (Cost, Insurance and Freight) — Like CFR but seller provides minimum cargo insurance (ICC C).
How to Choose
- New to exporting? Use FCA or FOB — you control the cargo up to loading, buyer handles the rest.
- Want maximum control over freight costs? Buy on EXW or FCA and manage your own forwarder.
- Selling to customers who want hassle-free delivery? DDP removes all logistics burden from the buyer.
- Shipping by container? Use FCA instead of FOB — FOB was designed for break-bulk cargo.
