Incoterms: International Commercial Terms Explained

In plain English

The current version is Incoterms 2020, which has 11 rules. Seven work for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are only for sea and inland waterway freight: FAS, FOB, CFR and CIF.

Each rule answers the same few questions: who loads, who pays for the main carriage, who buys insurance, who clears the goods for export and import, and at what point the risk moves from seller to buyer. The rules run roughly from the buyer doing the most (EXW) to the seller doing the most (DDP).

Incoterms do not decide who owns the goods, when payment is due or what happens in a legal dispute. Those points belong in the sales contract.

Why it matters when you ship

Using the same three letters on both sides of a deal avoids arguments about who should have booked the truck or paid the duties. It also tells the carrier and the customs broker who their customer is.

Always name the place as well as the rule, for example “FCA Chicago, Illinois, Incoterms 2020”. A rule without a named place is incomplete and the version year matters because the rules change.

Example

A US machine maker selling to a buyer in Mexico agrees on “DAP Monterrey”. The seller books and pays the freight to the buyer’s site and carries the risk until the truck arrives, while the buyer handles import clearance and duties.

Related terms

• EXW (Ex Works)
• FCA (Free Carrier)
• FAS (Free Alongside Ship)
• FOB (Free on Board)
• CFR (Cost and Freight)
• CIF (Cost, Insurance and Freight)
• CPT (Carriage Paid To)
• CIP (Carriage and Insurance Paid To)
• DAP (Delivered at Place)
• DPU (Delivered at Place Unloaded)
• DDP (Delivered Duty Paid)
• Freight terms

Incoterms: common questions