Reference

Incoterms® 2020,
in plain English.

Three letters in a contract decide who pays for what and who's holding the risk when a container goes over the side. Here's what each rule actually means — and where we think people usually pick the wrong one.

The basics

What an Incoterm does and doesn't settle.

Incoterms® are published by the International Chamber of Commerce. They're the shorthand the whole trading world uses — but they cover less than most people assume.

They do decide

  • Obligations — who arranges carriage, export clearance and insurance.
  • Risk — the exact point where responsibility for loss or damage moves from seller to buyer.
  • Costs — who pays for transport, loading, unloading, duties and the rest.

They don't decide

  • The price, or how and when you get paid.
  • When legal ownership of the goods transfers.
  • What happens if the goods turn up wrong or short.

All of that belongs in your sales contract. An Incoterm is not a contract.

Always write the rule with a named place — "FCA Ludhiana, India (Incoterms® 2020)". A bare "FCA" leaves the most important detail undefined, and that's exactly what gets argued about later.

Group 1

Rules for any mode of transport.

These seven work for sea, air, road, rail or any combination — which covers almost every containerised shipment.

EXW

Ex Works

The seller's minimum obligation — they just make the goods available at their own premises. Everything after that is yours, including export clearance.

Risk passes
At the seller's premises, before loading.
Best for
Buyers who want total control of the logistics (and have someone in the origin country to exercise it).
FCA

Free Carrier

The seller delivers the goods, cleared for export, to a carrier you nominate at an agreed place.

Risk passes
When the nominated carrier takes the goods.
Best for
Containerised freight. Genuinely the rule most container shippers should be using instead of FOB.
CPT

Carriage Paid To

The seller books and pays carriage to the named destination — but stops carrying the risk long before the goods get there.

Risk passes
When the goods are handed to the first carrier at origin.
Best for
Sellers arranging transport who don't want transit risk. Buyers: insure this yourself.
CIP

Carriage and Insurance Paid To

Same as CPT, with the seller also buying insurance for your benefit — and under Incoterms 2020, at all-risks level.

Risk passes
When the goods are handed to the first carrier at origin.
Best for
Buyers who want the seller to arrange both transport and proper insurance cover.
DAP

Delivered at Place

The seller brings the goods all the way to the named place and puts them at your disposal on the arriving vehicle, ready to unload.

Risk passes
At the named destination, just before unloading.
Best for
Door-to-door shipments where you handle import clearance and duty.
DPU

Delivered at Place Unloaded

The seller delivers and unloads at the named destination. The only Incoterm that obliges the seller to unload.

Risk passes
Once the goods are unloaded at the destination.
Best for
When the seller can genuinely unload safely at that place — check before agreeing to it.
DDP

Delivered Duty Paid

The seller's maximum obligation: delivered, import-cleared, all duties and taxes paid.

Risk passes
At the named destination, ready for unloading.
Best for
Buyers who want one landed price and zero logistics involvement. Sellers: price this carefully.
Group 2

Rules for sea and inland waterway only.

These four were written around a ship's rail. They suit bulk and break-bulk — and are widely, if not always wisely, used for containers.

FAS

Free Alongside Ship

The seller delivers when the goods are placed alongside the vessel you've nominated — on the quay or on a barge.

Risk passes
When the goods are alongside the ship at the origin port.
Best for
Bulk and break-bulk cargo. Not containers.
FOB

Free On Board

The seller clears for export and loads the goods on board the vessel you've nominated.

Risk passes
Once the goods are on board.
Best for
Non-containerised sea freight. Widely used for containers too — but FCA fits those better.
CFR

Cost and Freight

The seller pays cost and freight to the destination port. Risk passes to you much earlier than the goods arrive.

Risk passes
Once the goods are on board at origin.
Best for
Bulk or non-containerised sea freight where the seller books the vessel.
CIF

Cost, Insurance and Freight

Same as CFR, plus the seller buys marine insurance — but only minimum cover unless you negotiate more.

Risk passes
Once the goods are on board at origin.
Best for
Similar to CFR. Check the policy level; the default is thinner than most buyers assume.
From the desk

Where we see this go wrong.

Four mistakes that cost our customers real money before they came to us.

Using FOB for container shipments

Under FOB, risk only passes when the goods are on board the vessel. But you hand a container over at a terminal days before that. In between, the cargo is completely out of the seller's control while still legally at their risk — and insurers do notice. FCA was written for exactly this and closes the gap.

Assuming CIF means you're properly insured

CIF only obliges the seller to buy minimum cover, which is much narrower than most buyers picture. CIP under Incoterms® 2020 requires all-risks level instead. If you're buying CIF, either negotiate a higher level into the contract or take out your own policy.

Agreeing DDP into India without thinking it through

DDP puts Indian import clearance and duty on the seller. That generally needs a presence or representative here, and they usually can't reclaim the GST. It looks simple on the invoice and gets complicated at the port. DAP plus your own broker is normally cleaner.

Taking EXW without an origin agent

EXW makes you responsible from the seller's gate — including export clearance in their country, which as a foreign buyer you often can't legally do yourself. If you don't have someone reliable at origin, EXW is a trap. FCA shifts export clearance back to the seller where it belongs.

Not sure which term to agree to?

Send us the shipment and the deal you're negotiating. We'll tell you which rule protects you and what it does to your landed cost — no charge, and no obligation to book with us.

Ask us about your terms Get a quote

Incoterms® is a registered trademark of the International Chamber of Commerce. This guide is a summary for working use — for the binding text, refer to the ICC's own publication.

Further reading

Related reading.

Incoterms decide who pays and who carries the risk. These cover what happens next.

GuideLCL or FCL? How to actually decideWhere the break-even really sits, and the destination charges that decide it. GuideThe import documentation checklist for IndiaWhat Customs needs, who produces it, and the mismatches that hold shipments. OperationsPlanning a China to India shipment in a buyer's marketWhat to negotiate beyond the rate, and when to ask for it.