Incoterms® 2020: A Practical Guide for Global Trade
Incoterms® (International Commercial Terms) are the standard rules used in international contracts to define exactly where costs, risks, and responsibilities shift from the seller to the buyer.
Choosing the right Incoterm is critical for customs compliance. It determines who is responsible for export and import declarations, who pays the duties and taxes, and who provides the evidence needed for a customs audit.
Rules for Any Mode of Transport
Use these for air, rail, road, or containerised sea freight.
EXW
–Ex Works (Named Place)The seller's only responsibility is to make the goods available at their own premises. The buyer handles everything else: loading, export clearance, all transport, and import clearance.
FCA
–Free Carrier (Named Place)The seller delivers the goods, cleared for export, to a carrier or person nominated by the buyer at a named place.
CPT
–Carriage Paid To (Named Destination)The seller pays for the carriage of the goods to the named destination, but risk transfers to the buyer as soon as the goods are handed over to the first carrier.
CIP
–Carriage and Insurance Paid To (Named Destination)Similar to CPT, but the seller must also provide a high level of insurance cover for the buyer's risk during transit.
DAP
–Delivered at Place (Named Destination)The seller delivers the goods to a named destination, ready for unloading. The seller bears all risks and costs up to that point, except for import clearance.
DPU
–Delivered at Place Unloaded (Named Destination)The seller is responsible for delivery and unloading at the named destination. This is the only Incoterm that requires the seller to unload the goods.
DDP
–Delivered Duty Paid (Named Destination)The seller bears all costs and risks, including import clearance and the payment of all duties and taxes, to deliver the goods to the buyer's named place.
Rules for Sea and Inland Waterway Transport
Use these only for bulk cargo or non-containerised sea freight.
FAS
–Free Alongside Ship (Named Port of Shipment)The seller delivers when the goods are placed alongside the vessel at the named port.
FOB
–Free On Board (Named Port of Shipment)The seller delivers the goods on board the vessel nominated by the buyer.
CFR
–Cost and Freight (Named Port of Destination)The seller pays the costs and freight to bring the goods to the destination port, but risk transfers to the buyer once the goods are on board at the origin.
CIF
–Cost, Insurance and Freight (Named Port of Destination)Same as CFR, but the seller also provides a minimum level of insurance cover for the voyage.
Quick Reference: Who Pays for What?
At-a-glance responsibility breakdown
| Incoterm | Export Clearance | Main Carriage | Import Clearance | Import Duties/Taxes |
|---|---|---|---|---|
| EXW | Buyer | Buyer | Buyer | Buyer |
| FCA | Seller | Buyer | Buyer | Buyer |
| CPT/CIP | Seller | Seller | Buyer | Buyer |
| DAP/DPU | Seller | Seller | Buyer | Buyer |
| DDP | Seller | Seller | Seller | Seller |
| FOB/FAS | Seller | Buyer | Buyer | Buyer |
| CFR/CIF | Seller | Seller | Buyer | Buyer |
Why Incoterms Matter for Your Audit
When we audit your customs declarations at MyCustomsInfo®, we look for a mismatch between the Incoterm on your invoice and the "Valuation Method" or "Delivery Terms" on your customs entry.
A common error is using DDP but failing to properly deduct the "post-importation" costs from the customs value, leading to an overpayment of duty. Conversely, using EXW without adding the inland freight costs to the customs value can lead to underpayments and penalties.
Need help choosing the right terms or auditing your current shipments?
Book a ConsultationDisclaimer: This guide is for general information only. Incoterms® is a registered trademark of the International Chamber of Commerce (ICC). For the full official definitions and legal text, please refer to the ICC's official publications.