What Incoterms do and don’t cover
Incoterms rules, published by the International Chamber of Commerce (ICC), set out delivery, costs and risk. They do not decide the price, payment terms or when ownership of the goods transfers. Always write the rule with a named place and the version, for example FOB Nhava Sheva Incoterms 2020.
Rules for any mode of transport
- EXW (Ex Works): the buyer collects from the seller’s premises and handles everything, even export clearance.
- FCA (Free Carrier): the seller clears export and hands goods to the buyer’s carrier.
- CPT (Carriage Paid To): the seller pays freight to the destination, but risk passes at the first carrier.
- CIP (Carriage and Insurance Paid To): CPT plus seller-paid insurance at a high level of cover.
- DAP (Delivered at Place): the seller delivers to the destination; the buyer handles import clearance.
- DPU (Delivered at Place Unloaded): like DAP, but the seller also unloads.
- DDP (Delivered Duty Paid): the seller delivers cleared for import, duties paid.
Rules for sea and inland waterway only
- FAS (Free Alongside Ship): goods placed beside the vessel at the port of loading.
- FOB (Free On Board): goods loaded on board; the buyer pays ocean freight.
- CFR (Cost and Freight): the seller pays freight to the destination port; risk passes on board at origin.
- CIF (Cost, Insurance and Freight): CFR plus minimum insurance paid by the seller.
Try the interactive Incoterms explorer to see who handles each cost.
Which one should you use?
| Situation | Good choice |
|---|---|
| Containers, and you control freight | FCA |
| Bulk sea cargo, and you control freight | FOB |
| Supplier arranges freight to your port | CFR or CIF |
| Delivered to your door, you clear customs | DAP |
| Fully delivered, duties paid | DDP (only if the seller can legally import in your country) |
Common mistakes
- Using FOB or CIF for containers collected at an inland depot. Risk then passes at the ship’s rail, after the container has left the seller’s control.
- Assuming CIF insurance is enough. It is minimum cover only, so ask for more or buy your own.
- Agreeing to DDP without checking that the seller can register and pay import taxes in the buyer’s country.
- Leaving out the named place, which makes the rule unclear.
Frequently asked questions
How many Incoterms are there?
Incoterms 2020 has 11 rules: seven for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and four for sea and inland waterway (FAS, FOB, CFR, CIF).
What is the difference between FOB and CIF?
Under FOB the buyer pays sea freight and insurance. Under CIF the seller pays freight and minimum insurance to the destination port. In both, risk passes when the goods are on board at the port of loading.
Is DDP good for buyers?
It is the easiest rule for buyers, but it only works if the seller can legally clear goods and pay taxes in the buyer’s country.
