WtraLab – Global Trade Lab

If you’re involved in international trade, understanding Incoterms is essential. These standardized trade terms define who is responsible for costs, risks, and logistics at every stage of a shipment.

What are Incoterms? Incoterms (International Commercial Terms) are a set of 11 internationally recognized rules published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international trade transactions, covering delivery, insurance, customs clearance, and freight costs.

The current version is Incoterms 2020.

The 11 Incoterms at a Glance

EXW (Ex Works) — The seller makes goods available at their premises. The buyer bears all costs and risks from that point onward. Best for experienced buyers who control their own logistics.

FCA (Free Carrier) — The seller delivers goods to a named carrier at a specified location. Risk transfers to the buyer upon handover to the carrier.

CPT (Carriage Paid To) — The seller pays for carriage to the named destination. Risk transfers to the buyer once goods are handed to the first carrier.

CIP (Carriage and Insurance Paid To) — Same as CPT but the seller also provides insurance. Higher insurance coverage required under Incoterms 2020.

DAP (Delivered at Place) — The seller delivers goods to a named destination, ready for unloading. The buyer handles import customs and duties.

DPU (Delivered at Place Unloaded) — The seller delivers and unloads goods at the named destination. The only Incoterm requiring the seller to unload.

DDP (Delivered Duty Paid) — Maximum obligation for the seller. The seller handles everything including import duties and customs clearance at the destination.

FAS (Free Alongside Ship) — The seller delivers goods alongside the vessel at the named port. Used for sea or inland waterway transport only.

FOB (Free on Board) — One of the most commonly used Incoterms. The seller delivers goods on board the vessel. Risk transfers once goods are on the ship.

CFR (Cost and Freight) — The seller pays for freight to the destination port. Risk transfers once goods are on board the vessel.

CIF (Cost, Insurance and Freight) — Same as CFR but the seller also provides minimum insurance coverage. Widely used in commodity trading.

Which Incoterm Should You Use? The right Incoterm depends on your experience, relationship with the counterpart, and control over logistics. FOB and CIF are most common for sea freight. FCA is recommended for container shipments under Incoterms 2020.

Conclusion Choosing the right Incoterm can save you money, reduce risk, and avoid disputes. Always clearly state the Incoterm and named place in your sales contract.