What are Incoterms?
Incoterms (International Commercial Terms) are a set of 11 standardized trade terms published by the International Chamber of Commerce (ICC). They define exactly who — the buyer or seller — is responsible for shipping costs, insurance, customs clearance, and the risk of loss or damage at each stage of a shipment.
Incoterms do not transfer title of the goods, nor do they cover payment terms or dispute resolution. They simply define cost and risk allocation.
The 11 Incoterms 2020
EXW (Ex Works): Seller makes goods available at their premises. Buyer arranges everything from there — collection, export customs, freight, insurance, import customs, delivery.
FCA (Free Carrier): Seller delivers to a named carrier or location (often the port). Risk transfers at that point.
FAS (Free Alongside Ship): Seller delivers goods alongside the vessel at the named port. Used for sea freight only.
FOB (Free On Board): One of the most popular terms. Seller loads goods onto the ship. Risk and cost transfer once goods are on board. Used for sea/inland waterway only.
CFR (Cost and Freight): Seller pays ocean freight to destination port, but risk transfers when goods are on the ship at origin.
CIF (Cost, Insurance and Freight): Same as CFR, but seller also provides minimum insurance cover.
CPT (Carriage Paid To): Seller pays freight to named destination. Risk transfers at origin carrier.
CIP (Carriage and Insurance Paid To): Same as CPT but with enhanced insurance (Institute Cargo Clauses A).
DAP (Delivered at Place): Seller delivers to named place at destination, ready for unloading. Buyer handles import customs.
DPU (Delivered at Place Unloaded): Seller delivers goods unloaded at named place. Seller bears all risks up to this point.
DDP (Delivered Duty Paid): Maximum responsibility for seller. Seller handles everything including import customs and duties.
Which Incoterm should you use?
For most importers shipping from Asia: FOB is the most practical choice. It keeps you in control of ocean freight (so you choose the forwarder and negotiate the rate) while the supplier handles export customs in their country.
For new importers or small orders: CIF or DDP may be simpler — the supplier handles more, reducing your complexity. However, you lose visibility and often pay more.
For EU/US domestic trade: DAP is commonly used when a supplier delivers to your warehouse.
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