What are Incoterms?
Incoterms (International Commercial Terms) are a set of 11 three-letter rules published by the International Chamber of Commerce (ICC). Written into a sales contract, for example “FCA Shenzhen, Incoterms 2020”, they set out who arranges and pays for each part of the journey, who handles export and import customs, and the exact point where risk passes from seller to buyer.
Core principle: Incoterms decide cost, risk and customs responsibility, not when ownership of the goods transfers. That is left to the sales contract.
The 11 Incoterms 2020 rules
| Rule | Meaning | Risk passes |
|---|---|---|
| EXW | Ex Works | At the seller’s premises |
| FCA | Free Carrier | When handed to the buyer’s carrier |
| CPT | Carriage Paid To | When handed to the first carrier (seller pays freight) |
| CIP | Carriage and Insurance Paid To | As CPT, plus seller insures |
| DAP | Delivered at Place | At the destination, ready for unloading |
| DPU | Delivered at Place Unloaded | At the destination, unloaded |
| DDP | Delivered Duty Paid | At the destination, import cleared and duties paid |
| FAS* | Free Alongside Ship | Alongside the vessel at the port of loading |
| FOB* | Free on Board | On board the vessel at the port of loading |
| CFR* | Cost and Freight | On board; seller pays sea freight |
| CIF* | Cost, Insurance and Freight | On board; seller pays freight and insurance |
* Sea and inland waterway only. The other seven work for any transport mode.
Common mistakes
Using FOB for containers
What it is: FOB transfers risk when goods are on board, but container cargo is handed over at a terminal days earlier.
Why it matters: The ICC recommends FCA for containerised freight.
DDP without an import set-up
What it is: Under DDP the seller is the importer and must pay import duties and VAT in the destination country.
Why it matters: Non-EU sellers usually need an EU VAT registration and a customs representative.
Leaving out the place
What it is: A term without a precise named place, such as “FCA Ningbo CFS”, is ambiguous.
Why it matters: Disputes often come down to the exact handover point.
Example: A European brand buys from a factory in Vietnam on FCA terms. It books the freight itself, clears the goods into the EU and delivers them straight to its fulfilment warehouse, keeping control of both cost and transit time.
Frequently asked questions
Which Incoterm is best for eCommerce imports?
Many brands use FCA or FOB to control freight and customs themselves. DDP is simplest for the buyer, but the supplier must be able to act as importer.
Are Incoterms legally binding?
Only when they are written into the contract. Always state the rule, the named place and the version, for example “Incoterms 2020”.
Do Incoterms cover payment terms?
No. Payment, ownership transfer and liability for breach are covered by the sales contract.
Official source: ICC – Incoterms rules. Related: Tariff · Customs entry.
