Incoterms (International Commercial Terms) is a set of international commercial rules issued by the International Chamber of Commerce (ICC), defining the responsibilities of the buyer and seller in a goods sales contract. The latest version is Incoterms 2020, effective from 01/01/2020.
How many Incoterms 2020 rules are there?
The 11 terms are divided into 2 groups: Applicable to all modes of transport (7): EXW, FCA, CPT, CIP, DAP, DPU, DDP. Applicable to sea freight (4): FAS, FOB, CFR, CIF.
How do FOB and CIF differ?
FOB: the seller bears costs until the goods are loaded on board. CIF: the seller charters the vessel and pays freight and insurance to the destination port.
What is the difference between EXW and FCA?
EXW: the seller delivers the goods at the warehouse. FCA: the seller delivers the goods to the carrier designated by the buyer.
Which Incoterm should be chosen for an import shipment?
New buyers choose CIF. Experienced buyers choose FOB. Those buying goods delivered to their warehouse choose DDP.
What is the difference between DDP and DAP?
DDP: the seller bears all costs to the buyer's warehouse, including import taxes. DAP: does not include import taxes.
Many businesses new to import-export choose the wrong Incoterms — leading to disputes and additional costs. VTM Logistics offers free consultation on suitable terms for each shipment, container type and payment method.
Detailed Comparison FOB and CIF to choose the most suitable terms.
The 11 Incoterms are divided into 2 groups based on mode of transport:
EXW (Ex Works) — The seller delivers the goods at the factory. The buyer bears all costs and risks from receipt of the goods at the factory. This is the term with the lowest responsibility for the seller.
FCA (Free Carrier) — The seller delivers the goods to the carrier designated by the buyer at the agreed location. Risk transfers when the goods have been delivered to the carrier.
CPT (Carriage Paid To) — The seller pays freight to the destination place. Risk transfers when the goods are handed over to the first carrier.
CIP (Carriage and Insurance Paid To) — Like CPT, with an additional obligation for the seller to obtain cargo insurance. Under Incoterms® 2020, CIP normally requires Institute Cargo Clauses (A) cover or equivalent, unless the parties agree otherwise. The insured amount is at least 110% of the contract price; that amount is separate from the scope of insurance cover.
DAP (Delivered at Place) — The seller delivers the goods at the destination place. The seller bears all risks until the goods are ready for the buyer to unload.
DPU (Delivered at Place Unloaded) — The seller delivers and unloads the goods at the destination place. This is the only term requiring the seller to be responsible for unloading.
DDP (Delivered Duty Paid) — The seller bears all costs and risks, including import duties, until the goods are delivered at the buyer's location.
FAS (Free Alongside Ship) — The seller delivers the goods alongside the ship at the port of shipment. The buyer bears all costs and risks from that point onward.
FOB (Free on Board) — The seller delivers the goods on board the ship at the port of shipment. Risk transfers when the goods are delivered on board the vessel at the agreed port of shipment.
CFR (Cost and Freight) — The seller pays the sea freight to the destination port, but risk transfers once the goods are loaded on board at the port of shipment.
CIF (Cost, Insurance and Freight) — Same as CFR, but the seller purchases cargo insurance at minimum coverage.
| Criteria | FOB | CIF |
|---|---|---|
| Who hires the vessel? | Buyer | Seller |
| Who pays freight? | Buyer | Seller |
| Who buys insurance? | Buyer (at their own discretion) | Seller (minimum coverage) |
| Risk transfer | When goods are on board (port of departure) | When goods are on board (port of departure) |
| Suitable for | Buyer with logistics experience | New buyer looking to simplify |
Choosing the wrong Incoterms can lead to disputes and financial losses. Incoterms 2020 comprises 11 rules, each allocating risk and costs differently. VTM Logistics provides free consultation to customers on how to choose Incoterms.
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These sources explain the rules discussed above. Check the current requirements for your shipment; examples on this page do not replace the applicable regulations or contract terms.
