Incoterms, International Commercial Terms, are standardized trade rules published by the International Chamber of Commerce that define who is responsible for what during an international shipment. They specify when risk transfers from seller to buyer, who pays for transportation at each stage, who handles insurance, and who manages customs clearance.
Getting incoterms right matters because they determine your cost exposure, your risk exposure, and your operational responsibilities on every international shipment. Using the wrong incoterm, or misunderstanding the one you've agreed to, can result in unexpected freight charges, uninsured cargo, or customs delays.
The 11 Incoterms 2020
EXW, Ex Works
The seller makes the goods available at their premises. The buyer is responsible for everything from that point forward, pickup, export clearance, transportation, import clearance, and delivery. Maximum responsibility for the buyer, minimum for the seller. Used primarily for domestic transactions or when the buyer has strong logistics capabilities.
FCA, Free Carrier
The seller delivers goods to a carrier or named place designated by the buyer. The seller handles export clearance. Risk transfers when goods are handed to the carrier. This is the most versatile and commonly recommended incoterm for international trade.
CPT, Carriage Paid To
The seller pays freight to the named destination but risk transfers when goods are handed to the first carrier at origin. The buyer bears the risk during transit even though the seller paid for the transportation.
CIP, Carriage and Insurance Paid To
Same as CPT but the seller also arranges and pays for cargo insurance covering the buyer's risk during transit. Under Incoterms 2020, CIP requires comprehensive insurance coverage (Institute Cargo Clauses A).
DAP, Delivered at Place
The seller delivers goods to a named destination, ready for unloading. The seller bears all risk and cost until the goods arrive at the destination. The buyer handles unloading and import clearance.
DPU, Delivered at Place Unloaded
The seller delivers and unloads goods at a named destination. This is the only incoterm where the seller is responsible for unloading. Replaced DAT (Delivered at Terminal) in Incoterms 2020.
DDP, Delivered Duty Paid
Maximum responsibility for the seller. The seller handles everything, transportation, insurance, export clearance, import clearance, duties, and delivery to the buyer's premises. The buyer simply receives the goods.
FAS, Free Alongside Ship (sea only)
The seller delivers goods alongside the vessel at the named port. The buyer is responsible from that point, loading, ocean freight, insurance, and import clearance. Used for bulk cargo and heavy lift where the buyer wants to manage the ocean leg.
FOB, Free On Board (sea only)
The seller delivers goods on board the vessel at the named port. Risk transfers when goods pass the ship's rail. The buyer pays ocean freight and insurance. FOB is one of the most commonly used incoterms for ocean freight.
CFR, Cost and Freight (sea only)
The seller pays freight to the destination port but risk transfers when goods are loaded on the vessel at origin. Similar to CPT but specific to sea freight.
CIF, Cost, Insurance, and Freight (sea only)
The seller pays freight and insurance to the destination port. Risk transfers at loading. Under Incoterms 2020, CIF only requires minimum insurance coverage (Institute Cargo Clauses C), unlike CIP which requires comprehensive coverage.
How to choose the right incoterm
How much control do you want? If you want to manage your own logistics, use EXW or FCA. If you want the seller to handle everything, use DDP.
Where should risk transfer? If you want risk to transfer early (at origin), use EXW, FCA, or FOB. If you want the seller to bear risk until destination, use DAP or DDP.
Sea freight or any mode? FOB, CFR, CIF, and FAS are sea-only. For multimodal shipments (ocean + truck + rail), use FCA, CPT, CIP, DAP, DPU, or DDP.
Common incoterm mistakes
Using FOB for non-ocean shipments. FOB is sea-only. For air freight or multimodal, use FCA instead.
Confusing cost responsibility with risk responsibility. Under CPT and CFR, the seller pays for freight but the buyer bears the risk during transit. Many shippers assume that whoever pays also bears the risk, that's wrong.
Not specifying the named place precisely. "FOB China" is too vague. "FOB Shanghai Port" is correct. The named place determines exactly where responsibility transfers.
How Total Connection helps with incoterms
We manage ocean freight under any incoterm arrangement. Whether you're buying FOB, CIF, DDP, or any other term, we handle the logistics for the portions you're responsible for, and advise on the most cost-effective incoterm structure for your trade lane.
Call 732-817-0401 or request a quote.
Frequently Asked Questions
What are Incoterms?
Incoterms (International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce that define the responsibilities of buyers and sellers for delivery, risk transfer, and cost allocation in international transactions.
What is the difference between FOB and CIF?
FOB (Free On Board) means the seller delivers goods onto the vessel at the port of origin, and the buyer assumes risk and cost from that point. CIF (Cost, Insurance, and Freight) means the seller pays freight and insurance to the destination port, but risk transfers to the buyer once goods are on the vessel.
Which Incoterm is best for importers?
It depends on your logistics capabilities and risk tolerance. FOB gives you control over carrier selection and freight costs. CIF or CFR simplifies logistics if you prefer the seller to arrange ocean transport. DAP or DDP shifts maximum responsibility to the seller but typically costs more.
Do Incoterms apply to domestic shipping?
Incoterms are designed for international trade. For domestic U.S. shipments, Uniform Commercial Code (UCC) terms or carrier-specific freight terms apply instead.
Can Total Connection advise on Incoterm selection?
Yes. We help customers choose the most cost-effective and risk-appropriate Incoterm for their supply chain. We also coordinate logistics under any Incoterm, whether you need FOB origin services or full DDP door delivery.
Frequently Asked Questions
What are incoterms?
Standardized international trade rules that define who is responsible for transportation, risk, insurance, and customs at each stage of an international shipment. Published by the International Chamber of Commerce, currently in the 2020 edition.
What is the most commonly used incoterm?
FOB (Free On Board) is the most common for sea freight. FCA (Free Carrier) is increasingly recommended as the most versatile term for all transportation modes.
What's the difference between FOB and CIF?
Under FOB, the buyer pays ocean freight and insurance. Under CIF, the seller pays both. In both cases, risk transfers when goods are loaded on the vessel at origin.
Can I use FOB for air freight?
No. FOB is a sea-only incoterm. For air freight or multimodal shipments, use FCA instead.
What incoterm gives the buyer the least responsibility?
DDP (Delivered Duty Paid). The seller handles everything, transportation, insurance, export/import clearance, and duties. The buyer simply receives the goods.
