What are Incoterms?
INCOTERMS are a set of three-letter standard trade terms most commonly used in international contracts for the sale of goods. It is essential that you are aware of your terms of trade prior to shipment.
EXW (EX Works)
represents the minimum obligation for the seller, who merely makes goods available at their premises (factory, warehouse, etc.) for collection. The buyer assumes all costs, risks, loading, and export procedures from that point. It is applicable to all transport modes, domestic or international.
FCA (Free Carrier)
requires the seller to deliver goods, cleared for export, to a carrier named by the buyer at a specified place. Risk transfers upon delivery to the carrier. It is highly versatile, supporting all transport modes (multimodal) and is ideal for containerized cargo.
CPT (Carriage Paid To)
requires the seller to pay freight costs to a named destination, while risk transfers to the buyer upon delivery to the first carrier. It is multimodal (any mode of transport) and implies the seller clears export, but the buyer handles import formalities.
CIP (Carriage and Insurance Paid To)
requires the seller to pay for transport and insurance to a named destination, while risk transfers when goods are handed to the first carrier. Suitable for any mode(s) of transport (multimodal), it requires “all-risk” insurance (Institute Cargo Clauses A) for at least 110% of contract value.
DAT (Delivered at Terminal)
mandates that the seller delivers goods and transfers risk to the buyer once unloaded from the arriving vehicle at a named terminal, port, or place of destination. The seller handles all transport, export clearance, and unloading risks. This rule applies to any transport mode.
DAP (Delivered at Place)
mandates that the seller delivers goods to a named destination, ready for unloading, bearing all risks and costs until that point, excluding import clearance. Suitable for any mode of transport, the buyer handles import duties, taxes, and unloading.
DDP (Delivered Duty Paid)
represents the maximum obligation for the seller, who assumes all costs and risks—including export/import clearance, duties, and taxes—to deliver goods to a named destination. This rule applies to all transport modes, requiring the seller to deliver goods ready for unloading.
FAS (Free Alongside Ship)
requires the seller to deliver goods alongside a buyer-nominated vessel at a named port of shipment. The seller clears the goods for export and bears all costs/risks until the goods are placed at the quay or barge, after which risks transfer to the buyer.
FOB (Free on Board)
Incoterms® 2010 significantly changed Free on Board (FOB) by removing the traditional “ship’s rail” concept. Risk now transfers when goods are safely “on board” the vessel, not when they pass the rail, eliminating mid-air risk confusion and clarifying delivery for containerized, non-containerized, or bulk cargo.
CFR (Cost and Freight)
requires the seller to clear goods for export, load them onto the vessel, and pay freight costs to transport them to the named port of destination. Risk transfers from seller to buyer once the goods are on board the ship at origin, not upon arrival.
CIF (Cost, Insurance and Freight)
requires the seller to deliver goods on board the vessel, pay for carriage, and provide minimum insurance to the named port of destination. Risk transfers to the buyer once loaded, though the seller pays transport costs. CIF applies only to sea/inland waterway transport.