Incoterms (short for International Commercial Terms) are internationally recognised rules published by the International Chamber of Commerce (ICC). These terms define who is responsible for what during international shipments — from loading and transport to customs clearance, duties, and insurance.
The current version, Incoterms® 2020, includes 11 rules that help buyers and sellers avoid confusion, disputes and hidden costs.
The buyer takes full responsibility from the seller’s door, including loading and export formalities. The seller only makes the goods available at their premises or another named place; everything beyond that is the buyer’s responsibility. Works for any transport mode.
The seller delivers goods to a named place, loaded onto the buyer’s carrier and cleared for export. The buyer arranges and pays for the main transport from that point on. Risk transfers when the goods are handed over to the carrier. Works for any transport mode.
The seller pays for transport to the named destination, but risk transfers to the buyer once the goods are handed to the first carrier. In other words: the seller covers the freight, but the buyer bears the risk during transport. Works for any transport mode.
Same as CPT, but the seller must also take out insurance covering the buyer’s risk during transport. Under Incoterms 2020, the required insurance level for CIP is the highest (Institute Cargo Clauses A). Risk still transfers at the handover to the first carrier. Works for any transport mode.
The seller delivers the goods ready for unloading at the named destination. The buyer is responsible for unloading and for import clearance and duties. Risk transfers at the agreed place. Works for any transport mode.
The seller delivers and unloads the goods at the named destination. This is the only Incoterm that requires the seller to unload at destination. The buyer handles import clearance and duties. Works for any transport mode.
The seller delivers the goods cleared for import, including all duties and taxes. Risk and cost lie fully with the seller until the goods reach the named destination. Be cautious: VAT and local taxes can’t always be recovered, so this term can carry hidden costs. Works for any transport mode.
The seller delivers the goods alongside the vessel at the named port of shipment. From that moment, the buyer bears all costs and risks, including loading on board. Sea and inland waterway transport only.
The seller delivers the goods on board the vessel at the named port of shipment, cleared for export. Risk transfers to the buyer once the goods are on board. The buyer arranges and pays for the main sea freight. Sea and inland waterway transport only.
The seller pays the cost and freight to bring the goods to the named port of destination, but risk transfers to the buyer when the goods are loaded on board at the port of origin. Insurance is the buyer’s responsibility. Sea and inland waterway transport only.
Same as CFR, but the seller must also provide minimum cargo insurance (Institute Cargo Clauses C) for the buyer’s benefit. Risk still transfers when the goods are loaded on board at the port of origin. Sea and inland waterway transport only.
Choosing the right Incoterm shapes the cost, the risk and the paperwork of every shipment. A single three-letter rule decides who pays for transport, when risk passes from seller to buyer, who clears customs and who carries the insurance.
Incoterms affect four critical parts of your supply chain:
Who arranges and pays for the transport
When risk transfers from seller to buyer
Who handles export and import clearance
Who takes care of insurance and related obligations
Incoterms are split into two groups based on transport mode.
Multimodal terms (EXW, FCA, CPT, CIP, DAP, DPU, DDP) work for any transport mode or combination, including road, rail, air and containerised sea freight.
Maritime terms (FAS, FOB, CFR, CIF) are for sea and inland waterway transport only. They assume the goods cross the ship’s rail or are loaded alongside a vessel. Using a maritime term for a container shipment is a common mistake and can trigger insurance gaps.
EXW (Ex Works) The buyer takes full responsibility from the seller’s door, including loading and export formalities.
FCA (Free Carrier) The seller delivers goods to a named place, loaded onto the buyer’s carrier and cleared for export.
CPT (Carriage Paid To) The seller pays for transport to the named destination, but risk transfers when the goods are handed to the first carrier.
CIP (Carriage and Insurance Paid To) Same as CPT, plus the seller arranges insurance at the highest level (Institute Cargo Clauses A).
DAP (Delivered At Place) The seller delivers ready for unloading. The buyer handles import and unloading.
DPU (Delivered At Place Unloaded) The seller delivers and unloads at destination. The buyer handles import clearance.
DDP (Delivered Duty Paid) The seller delivers cleared for import, including all duties and taxes.
FAS (Free Alongside Ship) The seller delivers alongside the vessel at the named port of shipment. The buyer takes over from that moment.
FOB (Free On Board) The seller delivers on board the vessel at the named port of shipment, cleared for export. Risk transfers once on board.
CFR (Cost and Freight) The seller pays cost and freight to the destination port, but risk transfers when loaded on board at origin.
CIF (Cost, Insurance and Freight) Same as CFR, plus the seller provides minimum cargo insurance (Institute Cargo Clauses C).
Two responsibilities are easy to overlook when negotiating Incoterms: customs clearance and insurance.
Export clearance is the seller’s job under every term except EXW. Import clearance is the buyer’s job under every term except DDP. Mixing this up can leave goods stuck at the border with no clearing party appointed.
Insurance is mandatory only under CIP and CIF. Under every other term, cargo insurance is optional and the cost sits with whichever party carries the risk at that point. For high-value or long-distance shipments we strongly recommend a separate marine cargo policy regardless of the Incoterm.
Help me choose
Find the logistics solution that fits you best in 3 easy steps.
