INCOTERMS (International Commercial Terms) are standardised three-letter trade terms published by the International Chamber of Commerce (ICC). The 2020 edition — the current version — defines 11 rules governing the division of costs, risks, and obligations between buyer and seller in a sales contract. They are not law, but once incorporated into a contract by reference they have contractual force.
INCOTERMS govern the buyer–seller relationship only. They do not govern the shipowner–charterer relationship (which is covered by the charterparty), nor do they define title to goods or payment terms. The bill of lading is a separate instrument — INCOTERMS determine who must procure it, not what it says. Demurrage allocation between buyer and seller is not addressed by INCOTERMS and must be expressly agreed in the sale contract.
Group E — Departure
Minimum obligation on the seller. Risk passes at seller's premises.
EXWEx Works
Risk transfers
At seller's named place (factory, warehouse) when goods are placed at buyer's disposal — not loaded.
Carriage
Buyer arranges and pays all carriage.
Insurance
Buyer's responsibility (no obligation on seller).
Customs clearance
Buyer handles export and import clearance.
Practically difficult for buyers outside the seller's country — they must arrange export customs in a foreign jurisdiction. Not recommended for containerised cargo crossing borders.
Group F — Main Carriage Unpaid by Seller
Seller delivers to a carrier nominated by the buyer. Main carriage cost falls to the buyer.
FCAFree Carrier
Risk transfers
At the named place of delivery — either seller's premises (loaded) or a named location (unloaded from seller's vehicle).
Carriage
Buyer pays main carriage.
Insurance
No obligation on either party; buyer's risk once goods are with the carrier.
Customs clearance
Seller handles export; buyer handles import.
The ICC-recommended term for containerised cargo. A 2020 amendment allows FCA to be used with a bill of lading: the carrier, at buyer's instruction, issues a shipped-on-board B/L to the seller — solving the problem of sellers under letters of credit who need a clean shipped B/L before goods leave their port.
FASFree Alongside Ship
Risk transfers
When goods are placed alongside the vessel at the named port of shipment.
Carriage
Buyer pays loading, freight, and all onward carriage.
Appropriate for bulk or break-bulk cargo where the buyer controls vessel selection. Rarely used in modern containerised trade.
FOBFree on Board
Risk transfers
When goods are on board the vessel at the named port of shipment.
Carriage
Buyer pays freight and all carriage from the named port.
Insurance
Buyer's responsibility once on board.
Customs clearance
Seller handles export; buyer handles import.
Historically designed for break-bulk cargo crossing the ship's rail. Still the dominant term in commodity trades (iron ore, coal, grain, crude oil). For containerised cargo, FCA is preferable — under FOB the seller retains risk during the often-lengthy period of container terminal handling before the vessel sails.
Group C — Main Carriage Paid by Seller
Seller pays for main carriage but risk of loss transfers to the buyer at the port or place of shipment, before the main carriage leg.
CFRCost and Freight
Risk transfers
On board the vessel at the port of shipment (same risk point as FOB).
Carriage
Seller pays freight to the named port of destination.
Insurance
Buyer's responsibility for the sea voyage — seller has no insurance obligation.
Customs clearance
Seller handles export; buyer handles import.
Sea and inland waterway only. Buyer is advised to arrange cargo insurance independently. Common in commodity trades where buyer's insurer is preferred.
CIFCost, Insurance and Freight
Risk transfers
On board the vessel at the port of shipment.
Carriage
Seller pays freight to the named port of destination.
Insurance
Seller must procure minimum cover. Under INCOTERMS 2020, CIF requires Institute Cargo Clauses (C) — the minimum. Contrast CIP below.
Customs clearance
Seller handles export; buyer handles import.
Sea and inland waterway only. The most widely used term in bulk commodity trade and crude oil. The policy is for the buyer's benefit; the buyer may want to top up to ICC (A) cover at their own cost. Note: seller has a split duty — cost and insurance to destination but risk transfers at origin.
CPTCarriage Paid To
Risk transfers
When goods are handed to the first carrier at the place of shipment.
Carriage
Seller pays carriage to the named destination.
Insurance
No obligation on seller; buyer's risk from the first carrier.
Customs clearance
Seller handles export; buyer handles import.
Multimodal equivalent of CFR. Risk transfers earlier than cost — a key point buyers often miss.
CIPCarriage and Insurance Paid To
Risk transfers
When goods are handed to the first carrier at the place of shipment.
Carriage
Seller pays carriage to named destination.
Insurance
Seller must procure Institute Cargo Clauses (A) — the broadest cover. This is a change from the 2010 version, which required only ICC (C) for CIP.
Customs clearance
Seller handles export; buyer handles import.
Multimodal equivalent of CIF but with a higher insurance obligation on the seller. Appropriate for high-value manufactured goods in containers.
Group D — Arrival
Seller bears risk all the way to the named destination. Maximum obligation on the seller.
DAPDelivered at Place
Risk transfers
When goods are made available at the named place of destination, ready for unloading, but not unloaded.
Carriage
Seller pays all carriage to named destination.
Insurance
Seller's risk to destination; no formal insurance obligation but seller is exposed.
Customs clearance
Seller handles export; buyer handles import duties and clearance.
Replaced DDU from INCOTERMS 2010. Buyer is responsible for unloading at destination. Widely used in multimodal trade.
DPUDelivered at Place Unloaded
Risk transfers
When goods are unloaded at the named place of destination.
Carriage
Seller pays all carriage and unloading.
Insurance
Seller's risk until unloading is complete.
Customs clearance
Seller handles export; buyer handles import.
New in INCOTERMS 2020, replacing DAT (Delivered at Terminal). "Unloaded" replaces "terminal" because the delivery location need not be a terminal — it can be a construction site, warehouse, etc. This is the only rule where the seller is responsible for unloading.
DDPDelivered Duty Paid
Risk transfers
When goods are made available at the named destination, cleared for import, not unloaded.
Carriage
Seller pays all carriage.
Insurance
Seller's risk to destination; no formal obligation but exposure requires cover.
Customs clearance
Seller handles both export and import clearance, including duties and VAT.
Maximum seller obligation. The mirror image of EXW. Problematic where the seller cannot act as importer of record in the buyer's country. Commonly used in e-commerce shipments to consumers in regulated markets.
Maritime relevance
Seven of the 11 terms can be used for any mode of transport; only four — FAS, FOB, CFR, and CIF — are restricted to sea and inland waterway transport. In commodity trades (crude oil, dry bulk, LNG), FOB and CIF remain dominant. The shipowner selling freight will typically encounter FOB cargo (buyer nominates the vessel) or CIF cargo (seller nominates). Understanding which term applies determines who is the shipper on the bill of lading, who bears the freight obligation, and who holds the insurance policy.
A key 2020 change: under FCA, the parties may agree that the buyer instructs the carrier to issue a shipped-on-board bill of lading to the seller. This resolves a long-standing problem in letter-of-credit transactions where containerised cargo is booked under FCA but the seller needs a shipped B/L to present to the bank.
Common pitfalls
Using FOB for containerised cargo — the seller's risk extends through the container terminal until the ship sails. FCA to the container terminal is cleaner.
CIF insurance is minimum (ICC C only) — buyers in CIF contracts should top up independently if they need broader cover. CIP requires ICC (A).
Demurrage is not covered — a CIF or CFR seller who nominates a vessel that incurs laytime overrun has no INCOTERMS protection; the sale contract must allocate demurrage separately.
Customs obligations under DDP — a seller who cannot legally act as importer of record in the buyer's country should not agree DDP; DAP is a safer alternative.
See also
· Charterparties — shipowner–charterer contract; separate from the INCOTERMS buyer–seller sale contract.
· Laytime & demurrage — demurrage allocation not covered by INCOTERMS; governed by the sale contract and CP.