Incoterms® rules, published by the International Chamber of Commerce, define how costs, tasks and risks are split between seller and buyer for the delivery of goods. The current edition is Incoterms 2020. Always state the rule, the named place and the edition — for example “CIF Rotterdam, Incoterms 2020”.
What Incoterms do — and do not — cover
They cover delivery: who arranges and pays for transport, export and import clearance, and insurance, and the point where risk passes. They do not determine when ownership (title) transfers, the price, payment terms, or remedies for breach. Those belong in the sales contract.
The 11 rules
Rules for any mode of transport:
- EXW (Ex Works) — buyer collects from the seller's premises and handles almost everything, including export clearance.
- FCA (Free Carrier) — seller delivers to the buyer's carrier at a named place, cleared for export.
- CPT (Carriage Paid To) — seller pays carriage to the destination; risk passes when goods are handed to the first carrier.
- CIP (Carriage and Insurance Paid To) — as CPT, plus seller insures; Incoterms 2020 requires broad cover (Institute Cargo Clauses A).
- DAP (Delivered at Place) — seller delivers ready for unloading at the named destination; buyer handles import clearance and duties.
- DPU (Delivered at Place Unloaded) — as DAP but seller also unloads. Replaced DAT in the 2020 edition.
- DDP (Delivered Duty Paid) — seller delivers cleared for import with duties paid.
Rules for sea and inland waterway transport only:
- FAS (Free Alongside Ship)
- FOB (Free on Board) — risk passes when goods are on board the vessel at the port of shipment.
- CFR (Cost and Freight) — seller pays freight to the destination port; risk passes on loading.
- CIF (Cost, Insurance and Freight) — as CFR, plus seller insures, at minimum Institute Cargo Clauses C.
Common pitfalls
- Using FOB or CIF for containers. Containers are usually handed over at a terminal before loading, so the ICC recommends FCA, CPT or CIP for containerised cargo.
- Assuming CIF insurance is comprehensive. CIF only requires minimum cover; negotiate higher cover if needed.
- Choosing DDP without checking the seller can act as importer in your country, register for VAT and pay duties.
- Leaving the named place vague. “FCA China” is not a delivery point; “FCA [named warehouse], Ningbo” is.
Which rule should a buyer choose?
Buyers with their own forwarder and good freight rates often prefer FCA or FOB, keeping control of transport. Buyers wanting a simpler landed cost may prefer CIP, DAP or DDP, accepting that freight margins are built into the price. Whatever the choice, align the insurance, payment documents and contract terms with the chosen rule.