👉 Incoterms define who handles costs, risks, and logistics at each stage of shipping. The choice between 11 Incoterms (2020 Edition) can make or break your shipment—it all comes down to how responsibilities are shared.
Quick Run-through The 11 Incoterms (2020 Edition) ⬇️
➡️ FOB (Free on Board) – The seller pays to get goods onto the ship; buyer takes responsibility from there. (Sea Cargo)
✅ Best for businesses that handle their own sea shipping.
➡️ CIF (Cost, Insurance & Freight) – The seller covers the cost, insurance, and freight to the destination port, but the buyer handles local fees. (Sea Cargo)
✅ Good for those who want seller-managed sea transport but control at arrival.
➡️ CFR (Cost & Freight) – The seller pays for shipping, but the buyer takes risk once the goods are onboard. (Sea Cargo)
✅ Good when the seller handles sea transport, but the buyer manages insurance.
➡️ FAS (Free Alongside Ship) – The seller delivers goods next to the vessel; the buyer loads and handles everything from there. (Sea Cargo)
✅ Best for bulk or specialized cargo where the buyer arranges shipping.
➡️ DAP (Delivered at Place) – Seller delivers goods to the buyer’s location and covers everything except import duties.
✅ The buyer still manages import duties but avoids transport complexities.
➡️ DDP (Delivered Duty Paid) – The seller covers everything, including costs and duties, until the goods reach the buyer.
✅ A hassle-free option for the buyer.
➡️ EXW (Ex Works) – The seller makes the goods available at their premises; the buyer handles everything from pickup to delivery.
✅ Best for buyers who want full control over shipping and costs.
➡️ FCA (Free Carrier) – The seller delivers the goods to a carrier or agreed location; the buyer takes over from there.
✅ Ideal when using a forwarder or multimodal transport.
➡️ CPT (Carriage Paid To) – The seller covers transport to the destination, but risk transfers to the buyer once handed to the carrier.
✅ Useful when the buyer wants control over insurance but not initial transport.
➡️ CIP (Carriage & Insurance Paid To) – Like CPT, but the seller also provides insurance up to the final destination.
✅ A safer choice when buyers need insured transport.
➡️ DPU (Delivered at Place Unloaded) – The seller covers all transport costs and unloads at the destination terminal, but the buyer handles duties.
✅ Great when buyers need goods delivered and unloaded at a port or hub.
📌 Similar Incoterms - How Do They Differ?
To make it easier which terms are nearly identical and how they differ; We created this simplified chart grouping similar Incoterms based on their key differences:
| Category | Incoterms | Seller Pays For | Risk Transfers When… | Key Difference |
|---|---|---|---|---|
| Buyer Takes Over at Origin | EXW (Ex Works) | Nothing beyond making goods available | Buyer picks up the goods | Buyer handles everything |
| Seller Delivers to Carrier | FCA (Free Carrier) | Transport to agreed handover point | Goods reach the first carrier | More flexible than EXW |
| Seller Covers Ocean Freight | CIF (Cost, Insurance & Freight) CFR (Cost & Freight) |
Freight to destination port + Insurance (CIF only) |
Goods are onboard the ship | CIF includes insurance; CFR doesn’t |
| Buyer Loads the Ship | FAS (Free Alongside Ship) FOB (Free on Board) |
Delivery to port (FOB also covers loading) |
FAS: Goods are placed beside the vessel FOB: Goods are loaded on board |
FOB includes loading, FAS doesn’t |
| Seller Covers Land/Air Transport | CIP (Carriage & Insurance Paid To) CPT (Carriage Paid To) |
Freight to destination + Insurance (CIP only) |
When goods are handed to first carrier | CIP includes insurance; CPT doesn’t |
| Seller Delivers to Buyer | DAP (Delivered at Place) DPU (Delivered at Place Unloaded) DDP (Delivered Duty Paid) |
Transport to buyer’s site (DPU also covers unloading) (DDP also covers import duties) |
Upon arrival at buyer’s location | DPU includes unloading; DDP includes import duties |
📌 Incoterms Are Usually Stated In:
✅ Sales contracts (between buyer & seller)
✅ Proforma invoices & commercial invoices
✅ Bills of lading & airway bills (shipping documents)
✅ Insurance agreements (especially for CIF & CIP)
📌 Incoterms Are Formulated As Follows:
[Chosen Incoterm] + Named Location + Incoterms 2020
🔹 Example 1: "FOB – Shanghai Port, Incoterms 2020" — It means the seller is responsible until the goods are loaded onto the ship at Shanghai Port. After that, the buyer takes on the cost and risk.
🔹 Example 2: "DDP – New York, Incoterms 2020" — It means the seller is responsible for everything until the goods reach the buyer’s location in New York, including customs duties.
📌 You Choose The Right Incoterm by Considering:
✅ Who controls shipping—the buyer or seller?
✅ Who bears the risk at each stage?
✅ Who covers transport, insurance, and duties?
✅ Are there country-specific trade requirements?
🔹 For example: A buyer with strong logistics capability may prefer FOB to control shipping costs. Or a seller wanting to attract buyers might offer DDP to handle all costs and duties.
📌 Common Mistakes to Avoid
❌ Not specifying Incoterms in writing
❌ Using an old version – Always specify “Incoterms 2020”
❌ Misunderstanding cost vs. risk
💡 Need help choosing the right Incoterm for your shipment? Contact us today! 🚛📦
