Understanding who pays for transport, insurance, and customs. All 11 Incoterms 2020 terms explained with real-world use cases.
When buyer has full logistics capability and wants minimal seller involvement
Multimodal transport; buyer arranges freight from a specific point
Buyer wants paid transport but assumes risk early; cost transparency
Buyer wants full insurance coverage during transit at seller's expense
Buyer wants goods delivered but handles final clearance and unloading
Buyer wants minimal handling; seller provides unloaded delivery
Buyer wants hands-off experience; seller assumes all cost and risk
Traditional sea trade; buyer arranges ocean freight and insurance
Classic sea trade; seller covers loading, buyer covers ocean freight onwards
Buyer wants paid freight but arranges insurance for cost control
Buyer wants risk covered during ocean voyage at seller's expense
| Term | Mode | Risk Transfers | Seller Pays | Buyer Pays |
|---|---|---|---|---|
| EXW | All | At seller's premises | ||
| FCA | All | At named carrier/location (when goods handed to carrier) | ||
| CPT | All | When goods handed to first carrier (not at destination) | ||
| CIP | All | When goods handed to first carrier (not at destination) | ||
| DAP | All | When goods arrive at destination (before unloading) | ||
| DPU | All | When goods delivered and unloaded at destination | ||
| DDP | All | When goods delivered to buyer's location | ||
| FAS | Sea | When goods placed alongside vessel (loading begins) | ||
| FOB | Sea | When goods cross the ship's rail (loaded on board) | ||
| CFR | Sea | When goods cross the ship's rail (loaded on board) | ||
| CIF | Sea | When goods cross the ship's rail (loaded on board) |
FOB: Seller pays for loading; buyer pays ocean freight + insurance. CIF: Seller pays for both ocean freight AND insurance; buyer just pays import duties. Use CIF when you want the seller to absorb freight and insurance risk.
Use DDP when you want a completely hands-off experience. The seller covers everything—transport, insurance, customs, duties, and unloading. It's the most buyer-friendly term but also the most expensive for the seller.
CPT: Seller pays transport only. CIP: Seller pays transport AND insurance. Both transfer risk when goods are handed to the first carrier (not at final destination).
DAP: Seller delivers to destination but buyer unloads. DPU: Seller delivers and unloads at destination. Use DPU if you don't have unloading equipment; use DAP if you can handle unloading yourself.
EXW means the buyer bears all risk and cost from the moment goods leave the seller's location. The seller just makes goods available. Use EXW only if you have complete supply chain control.
| Term | Mode | Export Customs | Origin Freight | Main Carriage | Insurance | Import Customs | Destination Delivery |
|---|---|---|---|---|---|---|---|
| EXW | Any | B | B | B | B | B | B |
| FCA | Any | S | S | B | B | B | B |
| CPT | Any | S | S | S | B | B | B |
| CIP | Any | S | S | S | S (ICC A) | B | B |
| DAP | Any | S | S | S | S | B | B |
| DPU | Any | S | S | S | S | B | S |
| DDP | Any | S | S | S | S | S | S |
| FAS | Sea | S | B | B | B | B | B |
| FOB | Sea | S | S | B | B | B | B |
| CFR | Sea | S | S | S | B | B | B |
| CIF | Sea | S | S | S | S (ICC C) | B | B |
Common questions about Incoterms 2020 and international trade terms
Incoterms® (International Commercial Terms) are a set of standardized trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities of sellers and buyers in international trade transactions. They specify who pays for freight, insurance, and customs, and where the risk of loss or damage transfers from seller to buyer. The current edition, Incoterms® 2020, has been in effect since January 1, 2020, and contains 11 rules.
EXW (Ex Works) and FOB (Free on Board) sit at opposite ends of the seller-responsibility spectrum for sea freight. Under EXW, the seller only makes the goods available at their premises — the buyer arranges and pays for everything else, including export clearance. Under FOB, the seller loads the goods on board the vessel at the origin port and clears export customs. Risk transfers to the buyer once goods are on board under FOB.
DDP (Delivered Duty Paid) means the seller takes on maximum responsibility: delivering goods to the buyer's named destination already cleared through customs, with all duties and taxes paid. The buyer only unloads. DDP is seller-friendly in terms of customer experience but creates significant complexity for foreign sellers who must clear customs in the destination country, often requiring a local customs broker.
Four Incoterms® 2020 rules apply exclusively to sea and inland waterway transport: FAS (Free Alongside Ship), FOB (Free on Board), CFR (Cost and Freight), and CIF (Cost, Insurance and Freight). These terms reference a specific ocean vessel as the point of delivery or risk transfer. For air, road, or multimodal shipments, use the equivalent 'any mode' terms: FCA instead of FOB, CPT instead of CFR, CIP instead of CIF.
CIF (Cost, Insurance, Freight) and CIP (Carriage and Insurance Paid To) are similar — both require the seller to provide cargo insurance. The key differences: (1) CIF is for sea freight only; CIP works for any transport mode. (2) CIP requires a higher insurance standard (ICC 'A' clause — all-risk) while CIF requires only minimum coverage (ICC 'C' clause). For most international shipments, CIP provides better buyer protection than CIF.
Risk transfer depends on the Incoterm used: EXW = seller's premises; FCA, FOB, FAS = origin port/point; CPT, CFR, CIF, CIP = named destination but risk transfers at origin (insurance covers the transit); DAP, DPU, DDP = named destination country. The key distinction is that 'C' terms (CIF, CFR, CPT, CIP) transfer risk before delivery — the seller pays freight but the buyer bears transit risk.
Most US importers buying from China use FOB (for ocean) or FCA (for any mode). Under FOB, the Chinese supplier loads goods at the port and clears Chinese export customs — the US buyer then arranges and pays for ocean freight, marine insurance, US customs clearance, and inland delivery. This gives the importer full control over freight costs and carrier selection. Avoid CIF when possible — it gives up freight carrier selection to the supplier.
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