What Are Incoterms?
Incoterms (International Commercial Terms) are a set of internationally recognized rules published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international trade. They specify:
- Who pays for freight (ocean, air, or truck) - Who arranges and pays for insurance - Where the risk of loss or damage transfers from seller to buyer - Who handles export and import customs clearance
Incoterms are not laws — they are contractual terms that parties agree to include in their purchase contracts. The current version, Incoterms 2020, was published by the ICC and took effect on January 1, 2020.
Always specify the version when using Incoterms in contracts: for example, CIF Shanghai Incoterms 2020.
The 11 Incoterms 2020 Rules
Incoterms 2020 has 11 rules divided into two groups:
Rules for any mode of transport (7 rules): - EXW — Ex Works - FCA — Free Carrier - CPT — Carriage Paid To - CIP — Carriage and Insurance Paid To - DAP — Delivered at Place - DPU — Delivered at Place Unloaded - DDP — Delivered Duty Paid
Rules for sea and inland waterway transport only (4 rules): - FAS — Free Alongside Ship - FOB — Free on Board - CFR — Cost and Freight - CIF — Cost, Insurance and Freight
EXW — Ex Works
What it means: The seller makes the goods available at their premises (factory, warehouse). The buyer takes responsibility for everything from that point — loading, export clearance, freight, import clearance, and delivery to destination.
Risk transfers: When goods are made available at seller's premises.
Who does export customs: The buyer.
Best for: Buyers who have strong logistics capabilities and want maximum control over their supply chain. Not recommended for buyers new to importing — managing export customs in a foreign country is complex.
FCA — Free Carrier
What it means: The seller delivers the goods to a carrier nominated by the buyer at a specified place. If the place is the seller's premises, seller loads. If elsewhere (e.g., a freight terminal), seller delivers unloaded.
Risk transfers: When goods are handed to the nominated carrier.
Who does export customs: The seller.
Incoterms 2020 change: FCA now allows a bill of lading with an on-board notation to be issued, which is important for buyers using letters of credit. This was not possible under Incoterms 2010.
Best for: Most international shipments where the buyer arranges freight. FCA is the recommended alternative to FOB for containerized cargo because risk transfers before the goods reach the vessel (avoiding the ambiguous crane-hook risk transfer of FOB).
FOB — Free on Board
What it means: The seller delivers goods on board the vessel at the named port of shipment. Risk transfers when goods are on board the vessel. The buyer pays for ocean freight, insurance, and destination costs.
Risk transfers: When goods are loaded on the vessel.
Who does export customs: The seller.
Important note: FOB is technically designed for bulk cargo (grain, coal, oil) loaded directly into a vessel's hold. For containerized cargo, the ICC recommends FCA instead — with FOB, risk passes at the crane hook when the container goes on board, but you as buyer have no control over events at the origin port.
Despite this, FOB remains by far the most commonly used Incoterm in practice for container shipments, especially in Asia–Europe and Asia–North America trade. Chinese suppliers in particular default to FOB pricing.
CIF — Cost, Insurance and Freight
What it means: The seller pays for freight and insurance to the named destination port. However, risk transfers to the buyer when goods are on board the vessel at origin — the same point as FOB. The seller is paying for freight and insurance but the buyer bears the risk during transit.
Risk transfers: When goods are loaded on the vessel at origin.
Who does import customs: The buyer.
Important nuance: Under CIF, the seller only needs to obtain minimum insurance coverage (Institute Cargo Clauses C). If you want fuller coverage, specify it in the contract or use CIP instead (which requires All Risks coverage under Incoterms 2020).
Best for: Buyers who want the convenience of an all-in ocean freight price from the seller but are comfortable managing their own import customs clearance.
DAP, DPU, and DDP
These three 'D' terms place the most responsibility on the seller:
DAP (Delivered at Place): Seller delivers goods to the named destination, ready for unloading. Buyer unloads and handles import customs.
DPU (Delivered at Place Unloaded): Like DAP but seller unloads at the destination. DPU is the only Incoterm that requires the seller to unload.
DDP (Delivered Duty Paid): Maximum seller responsibility. Seller handles everything — export, freight, import customs clearance, duty payment, and delivery to the buyer's door. Buyer receives goods with no further logistics responsibility.
DDP is convenient for buyers but gives sellers the highest cost and risk exposure. For buyers new to importing, asking for DDP quotes lets you compare a true all-in landed cost without managing logistics yourself.
Which Incoterm Should You Use?
You are an importer buying from China by sea container: → FOB is the industry standard. Your forwarder picks up at origin port. You control freight costs and carrier selection.
You are a new importer without a freight forwarder yet: → CIF or DDP to get started. Let the seller handle freight — you focus on import clearance at destination.
You are buying high-value cargo and need all-risks insurance: → CIP instead of CIF. CIP requires the seller to provide all-risks (Institute Cargo Clauses A) coverage.
You are buying by air freight: → FCA (at named airport or seller's premises) or CPT/CIP for seller-arranged freight. Avoid FOB for air — it's a sea-only term.
You are a seller and want minimum responsibility: → EXW or FCA at your premises.
Common Incoterms Mistakes
Using FOB for air freight: FOB is a sea/waterway-only term. Technically, air shipments should use FCA. Using FOB for air creates ambiguity about where risk transfers.
Not specifying the named place clearly: "FOB" alone is incomplete. It must be "FOB Shanghai Yangshan Port, Incoterms 2020." The named place determines exactly where obligations transfer.
Assuming CIF means the seller pays import duties: Under CIF, the buyer handles import customs and duties. Only DDP shifts import duty payment to the seller.
Not specifying the Incoterms version: Always add the year — "Incoterms 2020" — to avoid disputes over which version applies.
Tracking Under Any Incoterm
Whatever Incoterm you agree to, knowing where your cargo is matters. Trackora tracks shipments regardless of who arranged the freight — enter your bill of lading, container number, air waybill, or express tracking number and see real-time status.
If you're buying CIF or DDP (seller-arranged freight), you can still track the shipment proactively by entering the bill of lading number your seller provides. Pro plan users get email alerts at key milestones — vessel departure, arrival at destination port, customs release — so you can coordinate your warehouse team and customs broker without waiting for updates from your supplier.