Understanding Incoterms®

What are Incoterms®

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First introduced in 1936 by the International Chamber of Commerce, Incoterms^®—short for international commercial terms—are a universal set of rules that define responsibilities during international trade transactions. Incoterms^® reduce misunderstandings and friction while controlling costs by assigning obligations as goods move from the seller to the buyer.

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As global trade has evolved, so have the rules. Incoterms^® have been revised nine times, most recently in 2020, to reflect changes in transportation methods and commercial practice.

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Core function of Incoterms®

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International shipments involve multiple stakeholders, from importers and exporters to transporters and insurers. Incoterms^® bring order to that complexity by:
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• Summarizing the obligations of the buyers and sellers
• Establishing when risk transfers between parties
• Clarifying how costs are allocated throughout the transaction

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For high-value cargo, these distinctions directly impact risk and liability.

How Incoterms® are categorized

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Incoterms^® are divided into two groups based on the delivery method. Seven of the rules apply to any mode of transport, including multimodal and containerized shipments. Four rules apply exclusively to sea and inland waterway transport, where cargo conditions can be verified prior to vessel loading. These waterway-specific rules cannot be used for containerized freight or combined transportation involving road, rail, or air.

Rules for any mode of transport

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EXW – Ex Works

Goods are ‘delivered’ and risk transfers to the buyer when the seller places the goods at the disposal of the buyer at a named place.

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FCA – Free Carrier

The seller delivers the goods to the carrier (or another party specified by the buyer) at the seller’s premises or other named location and is responsible for the export clearance. Once the goods are made available at the designated location, the buyer assumes the risk and responsibility for transportation and associated costs from that point forward.

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CPT – Carriage Paid To

The seller arranges and pays for the carriage of goods to a named destination, but the risk transfers to the buyer once the goods have been handed over to the carrier.

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CIP – Carriage and Insurance Paid To

The seller has the same responsibilities as CPT, but they also contract for insurance to cover against the buyer’s risk of loss or damage to the goods during the carriage.

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DPU – Delivered at Place Unloaded

Goods are delivered and risk transfers when goods arrive and are unloaded at the named destination.

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DAP – Delivered at Place

Goods are delivered and risk is transferred when goods arrive at named destination available for unloading.

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DDP – Delivered Duty Paid

Goods are delivered and risk transfers when goods arrive and import customs cleared at the named destination available for unloading.

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Rules for sea and inland waterway transport

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FAS – Free Alongside Ship

Goods are delivered and risk transfers when goods are placed alongside the ship at the named port.

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FOB – Free on Board

The seller delivers the goods onboard the ship at a named port of shipment and clears the goods for export. Once the goods are on board, the buyer assumes the risk and responsibility for all transportation, import formalities, and associated costs to the final destination.

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CFR – Cost and Freight

Goods are delivered and risk transfers when loaded on board main carriage arranged by the seller. Buyer assumes risk for shipment when loaded on board main carriage arranged by seller.

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CIF – Cost, Insurance and Freight

Goods are delivered and risk transfers when loaded on main carriage arranged by seller and the FPA insurance names the buyer as insured. Buyer assumes risk for shipment when loaded on board main carriage arranged by the seller.

Navigating Incoterms^® with confidence

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Incoterms^® are precise by design and matter most when your international freight is on the move.

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ICAT Logistics supports importers and exporters with expert guidance on Incoterms^® and international freight compliance. When you have clear responsibilities, decisions are quicker and shipment move with confidence.

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If you have any questions about Incoterms^® and how they apply to your operations, ICAT is ready to help.