Incoterms

In an increasingly interconnected global economy, international freight transport is part of everyday business. Companies import and export goods that travel thousands of kilometers by land, sea, and air. Yet, every delivery raises the same crucial question: Who is responsible—for organizing, paying, and taking the risk of transportation? This is where the Incoterms come into play. The Incoterms 2020, published by the International Chamber of Commerce (ICC), bring clarity to international sales contracts. They precisely define the obligations of the seller and buyer—from the provision of goods to transportation and insurance.

The current version, Incoterms 2020, includes eleven clauses, each regulating different distributions of responsibility, risk, and cost between the seller and buyer. Below, we take a detailed look at each of these terms and explain their real-world relevance in global trade.

EXW represents the minimum obligation for the seller and shifts almost the entire responsibility onto the buyer. Under EXW, the seller fulfills their duty simply by making the goods available at their premises or another agreed location (e.g., warehouse, factory gate). The seller is not responsible for loading the goods or handling export formalities. These tasks fall entirely to the buyer.

In concrete terms, the buyer assumes the risk from the moment the goods are made available. They must arrange loading, the main carriage, export clearance, import customs, and final delivery. This arrangement can be problematic if the buyer is unfamiliar with export regulations in the seller’s country.

EXW is often used in domestic transactions or with buyers who have robust logistics capabilities and want full control over transportation. Given its demands on the buyer, EXW should be selected with caution.

FCA is a flexible and widely used Incoterm suitable for almost all modes of transport—whether land, air, or sea. It offers a more balanced allocation of responsibilities compared to EXW.

The seller agrees to deliver the goods to a carrier named by the buyer at a specified location. This could be at the seller’s premises or another agreed place. The seller is also responsible for export clearance, which is a key difference from EXW.

Risk passes to the buyer when the goods are handed over to the carrier. The buyer then handles the main transport and all steps beyond. FCA is especially advantageous in container shipping, where handover often happens at an inland terminal.

Thanks to its flexibility, FCA is the preferred choice of many exporters, as it provides a clear division of responsibilities while maintaining control over the initial transport stages.

FAS is a specialized Incoterm intended exclusively for sea and inland waterway transport. It requires the seller to place the goods alongside the vessel at the named port of shipment—such as on a quay or loading dock—but not to load them onto the ship.

Once the goods are alongside, the buyer assumes all costs and risks. From that point, the buyer arranges loading, sea freight, and everything thereafter. The seller handles export clearance but not loading or insurance.

FAS is rarely used today due to its practical limitations. The handover point—"alongside" the ship—can be difficult to verify, and damage occurring in that narrow window may lead to disputes. In modern supply chains, especially those relying on container shipping, FAS is generally less practical.

FOB is one of the oldest and most well-known Incoterms, also limited to sea transport. Unlike FAS, FOB requires the seller not only to deliver the goods to the port but also to load them onto the named vessel. Risk transfers the moment the goods cross the ship’s rail.

The seller pays for export clearance and loading costs. From that point onward, the buyer assumes risk and responsibility for the sea transport and everything following. FOB is suitable for bulk goods like raw materials or machinery shipped on conventional cargo ships.

Importantly, FOB should not be used for container shipping, as containers are typically handed over at terminals before loading. In such cases, FCA is the more appropriate choice.

With CFR, the seller arranges and pays for transport to the destination port. However, risk passes to the buyer as soon as the goods are loaded on board the vessel—just like with FOB. This separation of cost and risk is characteristic of CFR.

The seller is responsible for export clearance and sea freight. The buyer, despite not arranging the freight, assumes risk once the goods are onboard and must cover costs from the destination port onward—such as unloading, import duties, and inland transport.

CFR is useful for large-volume sea freight where the seller can negotiate better shipping rates. Still, buyers should be aware that they bear the risk during transit, even though they don’t control it.

CIF builds upon CFR by adding an insurance requirement. The seller not only arranges transport to the destination port but must also provide cargo insurance for the buyer’s benefit.

As with CFR, risk transfers once the goods are loaded onboard. The seller must obtain minimum insurance coverage (typically ICC-C clauses) to protect the buyer against loss or damage during sea transit. CIF is ideal for buyers who need at least basic insurance coverage or have limited access to insurance providers.

Like CFR, CIF is only for sea transport. Buyers should understand that the insurance provided is often limited. For high-value or fragile goods, additional coverage may be necessary.

Under CPT, the seller agrees to deliver the goods to a named destination and pays for the transport to that point. However, the key issue lies in risk transfer: Risk passes to the buyer once the seller hands the goods over to the first carrier—not when they reach the destination.

This term is multimodal, applicable to all transport modes. CPT is particularly useful when the seller has favorable freight contracts or routinely ships to specific destinations. Buyers benefit from a pre-arranged delivery but carry the risk early in the journey.

CPT is ideal when sellers want logistical control, while buyers are prepared to assume risk after carrier handover. Clear definitions of the destination and first carrier are essential.

CIP is an enhanced version of CPT, requiring the seller to provide insurance in addition to transport. The seller pays for carriage to the agreed destination and takes out an insurance policy with a higher standard—usually ICC-A coverage.

Risk transfers at the same point as CPT: when the goods are handed over to the first carrier. The insurance benefits the buyer, covering transport risks until delivery.

CIP is best suited for high-value or sensitive goods and gives buyers peace of mind. Sellers face additional costs and responsibilities but offer greater service. A clear understanding of the insurance scope is vital.

DAP is one of the most buyer-friendly Incoterms, with the seller assuming nearly all logistical responsibilities. The goods are delivered to a named location in the importing country—such as a warehouse, site, or business premises. The seller pays all transport costs and bears the risk up to that point.

However, the buyer is responsible for import clearance, duties, and taxes. The seller is not obligated to unload the goods. Risk transfers upon arrival at the designated location, before unloading.

DAP is ideal for destinations with complex geographies or when the seller has a reliable logistics network. Buyers benefit from simplified logistics, handling only the final customs step.

DPU is the only Incoterm where the seller must unload the goods at the destination. It replaced the earlier DAT (Delivered at Terminal) clause from the Incoterms 2010. Here, the seller bears the entire responsibility—including unloading—until the goods are safely delivered at the named place.

DPU offers maximum relief to the buyer, who receives goods already unloaded. Risk transfers only after unloading is complete. Sellers, on the other hand, must have the capacity or partners to manage unloading properly.

DPU is ideal for buyers without unloading facilities, such as construction sites or small firms. Clear agreements on the unloading location and method are crucial.

DDP is the most comprehensive obligation for the seller. They cover all costs, risks, and customs formalities—including import clearance and payment of duties and taxes. The goods are delivered to the agreed location fully cleared and ready for use.

DDP is the most convenient option for buyers. They do not need to manage transport, customs, or risk. For sellers, however, it’s a demanding clause that requires in-depth knowledge of the import country’s regulations.

DDP is suitable when sellers have branches or reliable service providers in the buyer’s country. Without such infrastructure, DDP can be risky and expensive.

Selecting the appropriate Incoterm is a strategic decision that significantly affects international trade success. Depending on experience, logistics capabilities, transport modes, and negotiation power, different clauses will suit different businesses. Sellers who want minimal responsibility often prefer EXW, FCA, or FOB. Buyers seeking seamless delivery may lean toward DAP or DDP.

The chosen Incoterm must be clearly stated in the contract and properly applied. Only then can misunderstandings be avoided, legal certainty established, and the supply chain optimized. Incoterms are not optional extras—they are essential tools of modern global commerce.

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