Incoterms
A set of 11 internationally recognized trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities, costs, and risks between buyers and sellers in international transactions.
Incoterms (International Commercial Terms) are a standardized set of 11 trade terms published by the International Chamber of Commerce (ICC), most recently updated in 2020. They define precisely who is responsible for what in an international transaction: which party arranges transport, which party pays for transport, where risk transfers from seller to buyer, which party handles customs clearance, and which party arranges insurance.
The 11 Incoterms 2020 rules are divided into two groups. Rules for any mode of transport: EXW (Ex Works), FCA (Free Carrier), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), DAP (Delivered at Place), DPU (Delivered at Place Unloaded), and DDP (Delivered Duty Paid). Rules for sea and inland waterway transport only: FAS (Free Alongside Ship), FOB (Free on Board), CFR (Cost and Freight), and CIF (Cost, Insurance, and Freight). Using the wrong Incoterm for your transport mode can create legal ambiguity.
For DTC importers, the most commonly used Incoterms are FOB (you control shipping, the most popular choice), CIF (supplier handles shipping but you handle customs), and DDP (supplier handles everything, used mainly for samples). When specifying an Incoterm, always include the year version and the named place: "FOB Shenzhen (Incoterms 2020)" is a complete reference; "FOB" alone is ambiguous and can lead to disputes.
Why it matters
Always specify the Incoterms version year and named place in contracts: "FOB Shanghai (Incoterms 2020)" not just "FOB." This eliminates ambiguity about which rules apply and exactly where cost and risk transfer.
Practical Tip
Always specify the Incoterms version year and named place in contracts: "FOB Shanghai (Incoterms 2020)" not just "FOB." This eliminates ambiguity about which rules apply and exactly where cost and risk transfer.
You'll hear this when…
When booking freight
“"Our freight forwarder asked which Incoterms option we prefer for this LCL shipment."”
When tracking a shipment
“"The Incoterms status shows the container departed the origin port on schedule."”
When managing delivery
“"We use Incoterms for all inbound shipments to keep lead times predictable."”
Related Terms
Free on Board
FOBAn Incoterm where the seller delivers goods on board the vessel at the named port of shipment. Risk transfers from seller to buyer once goods pass the ship's rail.
Cost, Insurance, and Freight
CIFAn Incoterm where the seller pays for cost of goods, insurance, and freight to the named destination port. Risk transfers to the buyer once goods are loaded on the vessel at origin.
Delivered Duty Paid
DDPAn Incoterm where the seller bears all costs and risks of delivering goods to the buyer's named destination, including import duties and taxes.
Ex Works
EXWAn Incoterm where the seller makes goods available at their premises. The buyer bears all costs and risks from the factory door onward, including export clearance.
Free Carrier
FCAAn Incoterm where the seller delivers goods, cleared for export, to a carrier nominated by the buyer at a named place. Risk transfers at the point of handoff to the carrier.
Delivered at Place
DAPAn Incoterm where the seller delivers goods to a named destination, ready for unloading. The buyer is responsible for import clearance, duties, and unloading.
Cost and Freight
CFRAn Incoterm where the seller pays for the cost of goods and freight to the named destination port. Unlike CIF, insurance is not included and must be arranged by the buyer.
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