Incoterms (International Commercial Terms) – Detailed Notes with Examples
1. What are Incoterms?
Incoterms (International Commercial Terms) are standardized trade terms used in
international trade to define the responsibilities of buyers and sellers. They are published by
the International Chamber of Commerce (ICC) and specify:
Who pays for transportation, insurance, and duties
Where risk is transferred from seller to buyer
Who handles customs clearance
Why are Incoterms Important?
Avoids confusion in contracts by setting clear rules.
Reduces trade disputes between buyers and sellers.
Ensures a smooth flow of goods across borders.
2. Types of Incoterms (2020 Version)
Incoterms are divided into two categories based on the mode of transport:
A. Incoterms for Any Mode of Transport (Air, Sea, Road, Rail, or Multimodal)
1. EXW (Ex Works)
2. FCA (Free Carrier)
3. CPT (Carriage Paid To)
4. CIP (Carriage and Insurance Paid To)
5. DAP (Delivered at Place)
6. DPU (Delivered at Place Unloaded)
7. DDP (Delivered Duty Paid)
B. Incoterms for Sea & Inland Waterway Transport Only
8. FAS (Free Alongside Ship)
9. FOB (Free On Board)
10. CFR (Cost and Freight)
11. CIF (Cost, Insurance, and Freight)
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3. Detailed Explanation of Each Incoterm
A. Incoterms for Any Mode of Transport
1. EXW (Ex Works)
The seller makes goods available at their warehouse or factory.
The buyer is responsible for all transportation, insurance, customs clearance, and import
duties.
Example:
A manufacturer in India sells machines EXW Mumbai. The buyer in Germany must arrange
pickup, transport, customs, and delivery to their location.
Best for: Experienced buyers who can handle logistics.
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2. FCA (Free Carrier)
The seller delivers the goods to a named place (e.g., port, airport, or warehouse).
The buyer is responsible for main transport and import clearance.
Example:
A seller in China agrees on FCA Shanghai Airport. The seller arranges delivery to the
airport, and the buyer handles air freight to the UK.
Best for: Buyers who want control over shipping but need seller assistance with local
logistics.
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3. CPT (Carriage Paid To)
The seller arranges and pays for transportation to a named destination.
The buyer is responsible for import duties and customs clearance.
Example:
A seller in the USA sells goods CPT London. The seller pays for shipping to London, but the
buyer handles customs and final delivery.
Best for: Buyers who want delivery to a known location but can manage customs.
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4. CIP (Carriage and Insurance Paid To)
Same as CPT, but seller also pays for insurance up to the destination.
Risk transfers to the buyer once the goods are handed to the first carrier.
Example:
A seller in France sells CIP New York. The seller covers transport and insurance, but the
buyer handles customs and final delivery.
Best for: Buyers who want insured shipping.
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5. DAP (Delivered at Place)
The seller pays for transport and delivers goods ready for unloading at the buyer’s location.
The buyer handles import duties and customs clearance.
Example:
A seller in Germany sells DAP Mumbai. The seller pays for transport to Mumbai, but the
buyer pays customs and import duties.
Best for: Buyers who want goods delivered close to their location but will handle customs.
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6. DPU (Delivered at Place Unloaded)
The seller is responsible for unloading goods at the buyer’s location.
The buyer handles customs clearance and import duties.
Example:
A supplier in Japan sells DPU Delhi Warehouse. The seller pays for shipping and unloads at
the warehouse, while the buyer handles customs.
Best for: Buyers who need unloading included in delivery.
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7. DDP (Delivered Duty Paid)
The seller covers all costs, including customs duties and taxes.
The buyer only receives the goods without handling customs or payments.
Example:
A seller in Italy sells DDP New York. The seller covers transport, customs, and taxes, and
the buyer simply receives the goods.
Best for: Buyers who want hassle-free delivery.
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B. Incoterms for Sea & Inland Waterway Transport
8. FAS (Free Alongside Ship)
The seller delivers the goods next to the ship at the port.
The buyer handles loading, shipping, and import.
Example:
A seller in Brazil sells FAS Santos Port. The seller delivers goods near the ship, and the
buyer loads and ships them to Spain.
Best for: Buyers who want control over ocean freight.
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9. FOB (Free On Board)
The seller loads the goods onto the ship at the named port.
The buyer handles the main transport and import.
Example:
A seller in Vietnam sells FOB Ho Chi Minh Port. The seller loads goods onto the ship, and
the buyer manages shipping to the USA.
Best for: Buyers who want control after loading.
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10. CFR (Cost and Freight)
The seller pays for ocean freight to the destination port.
The buyer handles import customs and final delivery.
Example:
A seller in India sells CFR Hamburg. The seller pays for shipping to Hamburg, but the buyer
clears customs and arranges final transport.
Best for: Buyers who can handle customs but want shipping covered.
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11. CIF (Cost, Insurance, and Freight)
Same as CFR, but the seller also pays for insurance until the destination port.
The buyer is responsible for customs and final delivery.
Example:
A supplier in China sells CIF Los Angeles. The seller covers transport and insurance, but the
buyer manages import clearance.
Best for: Buyers who want insured shipping up to the destination port.
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4. How to Choose the Right Incoterm?
1. If the Buyer Wants Full Control, Including Pickup from the Seller’s Warehouse:
Use EXW (Ex Works) – The buyer arranges everything, including transport, insurance, and
customs clearance.
2. If the Buyer Wants the Seller to Deliver to a Transport Hub (Port, Airport, or Warehouse):
Use FCA (Free Carrier) – The seller delivers to a named location, but the buyer arranges the
main transport.
3. If the Buyer Wants the Seller to Pay for Shipping but Will Handle Import Customs:
Use CPT (Carriage Paid To) – The seller pays for transport to the destination, but the buyer
clears customs and handles final delivery.
Use CIP (Carriage & Insurance Paid To) – The seller pays for transport and insurance, but
the buyer handles customs and final delivery.
Use CFR (Cost and Freight) – The seller covers ocean freight, but the buyer clears customs
and handles final delivery.
Use CIF (Cost, Insurance & Freight) – The seller pays ocean freight and insurance, but the
buyer clears customs and handles final delivery.
4. If the Buyer Wants the Seller to Deliver to Their Location (Without Import Duty Paid):
Use DAP (Delivered at Place) – The seller arranges transport and delivers the goods, but
the buyer is responsible for customs duties and taxes.
Use DPU (Delivered at Place Unloaded) – The seller delivers and unloads the goods at the
buyer’s location, but the buyer handles customs clearance.
5. If the Buyer Wants Hassle-Free Delivery with All Duties and Taxes Paid by the Seller:
Use DDP (Delivered Duty Paid) – The seller handles everything, including transport,
insurance, customs clearance, and import duties. The buyer only receives the goods.
6. If the Buyer Wants to Control Ocean Freight but Needs the Seller to Handle Local
Transport:
Use FAS (Free Alongside Ship) – The seller delivers the goods near the ship, but the buyer
loads them and handles shipping.
Use FOB (Free On Board) – The seller loads the goods onto the ship, and the buyer handles
everything from there.
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5. Final Summary
EXW (Ex Works) – Buyer handles everything from the seller’s warehouse.
FCA (Free Carrier) – Seller delivers to a transport hub.
CPT (Carriage Paid To) – Seller pays shipping, buyer handles import.
CIP (Carriage & Insurance Paid To) – Seller pays shipping & insurance.
DAP (Delivered at Place) – Seller delivers to buyer’s location, buyer handles customs.
DPU (Delivered at Place Unloaded) – Seller delivers & unloads.
DDP (Delivered Duty Paid) – Seller pays everything, buyer just receives goods.
FAS (Free Alongside Ship) – Seller delivers near the ship.
FOB (Free On Board) – Seller loads goods onto the ship.
CFR (Cost and Freight) – Seller pays ocean freight, buyer handles import.
CIF (Cost, Insurance & Freight) – Seller pays ocean freight & insurance.
