The Incoterms (International Commercial Terms) is a set of international trade rules developed by the International Chamber of Commerce. It defines the relationship between the seller and the buyer and the allocation of risk. More specifically:
- Who pays for the various parts of the shipment,
- When does the risk transfer,
- who handles customs clearance,
- who takes out insurance.
The currently valid version is Incoterms 2020.
Official information: ICC Incoterms Rules
A Brief Overview of All Incoterms 2020 Rules
Can be used for any mode of transportation
| Abbreviation | Name | The Essence |
|---|---|---|
| EXW | Ex Works | The seller only makes the goods available at its own premises. Almost all costs and risks are borne by the buyer. |
| FCA | Free Carrier | The seller delivers the goods to the buyer's carrier at a specified location. |
| CPT | Carriage Paid To | The seller pays for shipping to the destination, but the risk passes to the buyer earlier. |
| CIP | Carriage and Insurance Paid To | It's like CPT, but the seller also takes out insurance. |
| DAP | Delivered at Place | The seller will deliver the goods to the specified location without unloading them. |
| DPU | Delivered at Place, Unloaded | The seller will deliver the goods to the specified location AND unload them. |
| DDP | Delivered Duty Paid | The seller takes care of almost everything: shipping, customs, and taxes. The seller bears the greatest responsibility. |
For maritime transport only
| Abbreviation | Name | The Essence |
|---|---|---|
| FAS | Free Alongside Ship | The seller places the goods next to the ship at the port. |
| FOB | Free On Board | The seller loads the goods onto the ship. |
| CFR | Cost and Freight | The seller pays for the ocean freight, but the risk passes to the buyer upon loading onto the ship. |
| CIF | Cost, Insurance, and Freight | Like CFR, but the seller also takes out insurance. |
The most commonly used ones are simply
EXW – „Come Get It”
The salesperson simply prepares the merchandise.
The buyer is responsible for organizing:
- loading,
- export,
- transport,
- import,
- customs.
The seller's liability is minimal.
FCA – „I’ll hand it over to the carrier”
This is a very common rule in B2B.
The seller:
- export customs clearance,
- hands it over to the carrier.
The buyer:
- pays for the main shipment,
- handles import customs clearance.
In practice, it's often better than EXW.
FOB – A Classic of the Seas
The seller is liable as long as the goods are on board the ship.
After that:
- the risk is borne by the buyer,
- But the seller might still pay for shipping (under different rules).
CIF – with insurance included
The seller:
- pays for shipping by sea,
- takes out insurance.
However, the risk passes to the buyer as soon as the goods are loaded.
DAP – „I’ll Deliver It to Your Door”
The seller:
- arranges for the entire shipment to the destination.
The buyer:
- import duties,
- pays taxes.
DDP – „I’ll Take Care of Everything”
The seller:
- delivers,
- customs clearance (both exports and imports),
- is taxed,
- delivers.
It's the easiest for the buyer, but the most burdensome for the seller.
What should you keep in mind?
Risk ≠ cost
For example, in the case of CIF/CPT:
- The seller pays,
- but the risk may already have passed to the buyer.
You must specify an exact location
For example:
- „DAP Budapest”
- „FCA Hamburg Port”
- „EXW Győr”
The more accurate, the better.
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