Incoterms are standard trade terms published by the International Chamber of Commerce. They tell buyer and seller who arranges and pays for transport, who handles customs and where responsibility for loss or damage passes. The current edition is Incoterms 2020, with 11 terms.
The five terms people meet most
- EXW (Ex Works): the buyer collects from the seller’s premises and carries nearly all cost and risk
- FOB (Free On Board): the seller delivers goods on board the vessel at the named port, and risk passes there. Sea and inland waterway only
- CIF (Cost, Insurance and Freight): the seller pays freight and minimum insurance to the destination port, but risk still passes at loading. Sea only
- DAP (Delivered at Place): the seller delivers to the named place, ready for unloading, and the buyer handles import clearance
- DDP (Delivered Duty Paid): the seller delivers and pays import duties and taxes as well
Three common misunderstandings
- The term does not transfer ownership. That is set by your sales contract
- CIF gives the buyer only minimum insurance cover, so many buyers add their own
- Using FOB or CIF for a container often makes less sense than FCA or CIP, because the box is handed to the carrier at a terminal before it is loaded
How to choose
Pick the term that matches how much control you want. Buyers who have a trusted forwarder often prefer FOB or FCA, so they control the freight. Sellers who want to offer a simple landed price often choose DAP. Whatever you choose, name the exact port or place, because “FOB China” without a port is not a complete term.
Not sure which term fits a new customer? Ask our operations desk before you sign the contract.