Incoterms® are among the most widely used rules in international trade, but they are also frequently misunderstood. FOB, CIF, EXW or DDP do much more than identify who pays the freight: they allocate delivery obligations, transport costs, customs responsibilities and, crucially, the point at which risk passes from seller to buyer.
Incoterms® 2020 are 11 standard trade rules published by the International Chamber of Commerce that define key obligations, costs and risk between seller and buyer in contracts for the sale of goods.
The International Chamber of Commerce first introduced Incoterms rules in 1936. The current edition, Incoterms® 2020, entered into force on 1 January 2020 and remains the latest version.
The rules have become part of the everyday language of international sales, shipping, logistics, commodities and trade finance.
They answer some of the most commercially important questions in a cargo transaction:
- Where does the seller deliver the goods?
- When does risk pass to the buyer?
- Who arranges the main transport?
- Who pays the freight?
- Who handles export clearance?
- Who handles import clearance?
- Does the seller have to arrange cargo insurance?
- Who pays particular transport-related costs?
- What are Incoterms?
- All 11 Incoterms at a glance
- Any-mode vs sea-only Incoterms
- EXW — Ex Works
- FCA — Free Carrier
- CPT — Carriage Paid To
- CIP — Carriage and Insurance Paid To
- DAP — Delivered at Place
- DPU — Delivered at Place Unloaded
- DDP — Delivered Duty Paid
- FAS — Free Alongside Ship
- FOB — Free On Board
- CFR — Cost and Freight
- CIF — Cost, Insurance and Freight
- FOB vs CIF
- Which Incoterms should be used for containers?
- Risk vs cost: the biggest mistake
- Incoterms vs Bill of Lading
- Incoterms vs charterparty
- What Incoterms do not cover
- How to choose the right Incoterm
- Incoterms FAQ
What are Incoterms?
Incoterms stands for International Commercial Terms.
The rules are published by the International Chamber of Commerce and are designed to reduce uncertainty in sales contracts by providing an internationally recognised framework for the delivery of goods.
They are not shipping contracts themselves.
They are incorporated into a contract of sale between buyer and seller.
A properly written trade term should identify:
Rule + named place or port + Incoterms® 2020
Example: FOB Piraeus Incoterms® 2020
The named location matters because a term such as FOB or DAP without a clearly identified port or place may leave uncertainty over exactly where delivery, cost or risk obligations change.
All 11 Incoterms 2020 rules at a glance
| Rule | Meaning | Mode | Main carriage paid by | Risk generally transfers |
|---|---|---|---|---|
| EXW | Ex Works | Any | Buyer | When goods are placed at buyer’s disposal at named place |
| FCA | Free Carrier | Any | Buyer | When delivered to buyer’s nominated carrier/person |
| CPT | Carriage Paid To | Any | Seller | When goods are delivered to the carrier |
| CIP | Carriage and Insurance Paid To | Any | Seller | When goods are delivered to the carrier |
| DAP | Delivered at Place | Any | Seller | At destination, before unloading |
| DPU | Delivered at Place Unloaded | Any | Seller | At destination, after unloading |
| DDP | Delivered Duty Paid | Any | Seller | At destination, import-cleared, before unloading |
| FAS | Free Alongside Ship | Sea / inland waterway | Buyer | When goods are alongside vessel |
| FOB | Free On Board | Sea / inland waterway | Buyer | When goods are on board vessel |
| CFR | Cost and Freight | Sea / inland waterway | Seller | When goods are on board vessel at shipment port |
| CIF | Cost, Insurance and Freight | Sea / inland waterway | Seller | When goods are on board vessel at shipment port |
The first decision: any mode or sea only?
The 11 Incoterms rules are split into two groups.
Rules for any mode or combination of modes
EXW, FCA, CPT, CIP, DAP, DPU and DDP can be used for road, rail, air, sea or multimodal transport.
Rules specifically for sea and inland waterway transport
FAS, FOB, CFR and CIF are designed for transactions where delivery takes place alongside or on board a vessel.
EXW — Ex Works
EXW Ex Works
EXW places relatively limited delivery obligations on the seller.
The seller makes the goods available to the buyer at the named location — commonly the seller’s factory, warehouse or premises.
The buyer then assumes much of the transport responsibility.
That can include:
- loading arrangements;
- inland transport;
- export formalities;
- main carriage;
- insurance;
- import clearance; and
- final delivery.
A Greek buyer purchases machinery EXW Milan. The Italian seller makes the machinery available at the agreed premises. The buyer organises the transport chain from there.
EXW can appear simple, but it may become awkward in cross-border trade where the buyer faces difficulty completing export formalities in the seller’s country.
For that reason, FCA is often worth considering instead.
FCA — Free Carrier
FCA Free Carrier
Under FCA, the seller delivers the goods to the carrier or another person nominated by the buyer at the agreed location.
The seller normally handles export clearance.
Risk transfers when the FCA delivery obligation has been completed.
The precise location is therefore critical.
Delivery at the seller’s premises is operationally different from delivery at a freight terminal or other named location.
Why FCA matters in container shipping
FCA is particularly important for containerised cargo because containers are commonly handed to a carrier at a terminal before the goods are physically loaded onto the ocean vessel.
That makes FCA capable of matching the actual handover point more accurately than FOB in many container transactions.
FCA and the on-board Bill of Lading
Incoterms® 2020 introduced an important mechanism for FCA transactions where banks or documentary-credit arrangements require an on-board Bill of Lading.
The parties can agree for the buyer to instruct the carrier to issue an on-board Bill of Lading to the seller after loading.
For a deeper explanation of transport documents, see Tide Signal’s Bill of Lading in Shipping guide.
CPT — Carriage Paid To
CPT Carriage Paid To
CPT demonstrates one of the most important Incoterms concepts: the point where cost transfers and the point where risk transfers can be different.
The seller arranges and pays for carriage to the named destination.
But risk can pass to the buyer much earlier — when the seller delivers the goods to the carrier.
↓
RISK PASSES TO BUYER
↓
TRANSPORT CONTINUES
↓
SELLER STILL PAYS CARRIAGE TO NAMED DESTINATION
That separation is one of the areas most likely to confuse inexperienced traders.
CIP — Carriage and Insurance Paid To
CIP Carriage and Insurance Paid To
CIP works similarly to CPT, except that the seller must also arrange cargo insurance for the buyer’s risk.
Under Incoterms® 2020, CIP normally requires a comparatively broad level of insurance consistent with Institute Cargo Clauses (A) or similar cover, unless the parties agree otherwise.
Risk still passes when the goods are delivered to the carrier rather than at the final destination.
DAP — Delivered at Place
DAP Delivered at Place
Under DAP, the seller carries the goods and the associated transport risk to the agreed destination.
Delivery occurs when the goods are placed at the buyer’s disposal on the arriving means of transport, ready for unloading.
The buyer normally handles the unloading and import clearance.
DAP can therefore place substantially more logistics responsibility on the seller than an F-rule such as FCA or FOB.
DPU — Delivered at Place Unloaded
DPU Delivered at Place Unloaded
DPU is distinctive because the seller must not only bring the goods to the named destination but also unload them.
The seller bears the risk through the unloading operation.
DPU replaced the former DAT — Delivered at Terminal — terminology in Incoterms® 2020.
The change reflects the fact that delivery can take place at an agreed location other than a formal terminal.
DDP — Delivered Duty Paid
DDP Delivered Duty Paid
DDP places the broadest delivery burden on the seller among the Incoterms rules.
The seller is responsible for bringing the goods to the agreed destination and clearing them for import.
This normally includes responsibility for applicable import duties and customs formalities.
The goods are delivered ready for unloading.
Under DDP, the buyer receives something close to a door-delivered transaction from a logistics perspective. But the seller must be certain that it can legally and practically complete import clearance in the destination country.
FAS — Free Alongside Ship
FAS Free Alongside Ship
FAS is a sea or inland-waterway term.
The seller delivers when the goods are placed alongside the vessel nominated by the buyer at the named port of shipment.
Risk passes at that point.
The buyer arranges the main ocean carriage.
FAS can be particularly relevant in certain bulk, heavy-lift and commodity trades where cargo is physically delivered alongside the vessel before loading.
FOB — Free On Board
FOB Free On Board
FOB is probably one of the best-known shipping terms in global trade.
Under FOB, the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment.
Risk passes once the goods are on board.
The buyer normally contracts and pays for the ocean carriage.
FOB Piraeus Incoterms® 2020
The seller carries the cargo through the agreed FOB delivery point at Piraeus. Once the cargo is on board the nominated ship, risk passes to the buyer under the FOB framework.
Who pays freight under FOB?
The buyer generally arranges and pays the main carriage.
This is one of the central differences between FOB and CIF.
Should FOB be used for container shipping?
Not automatically.
The ICC specifically warns that FOB may be inappropriate where goods are handed to the carrier before they are loaded aboard the ship — for example at a container terminal.
In that situation, FCA should be considered.
CFR — Cost and Freight
CFR Cost and Freight
Under CFR, the seller arranges and pays the freight to the named port of destination.
However, risk transfers much earlier: when the goods are delivered on board the vessel at the port of shipment.
This produces a crucial split:
RISK → BUYER
↓
OCEAN VOYAGE
↓
PORT OF DESTINATION
FREIGHT PAID BY SELLER
The seller has no Incoterms obligation under CFR to obtain cargo insurance for the buyer.
A buyer using CFR therefore needs to consider its own insurance arrangements.
CIF — Cost, Insurance and Freight
CIF Cost, Insurance and Freight
CIF is one of the most important terms in maritime commodity trading.
Under CIF, the seller:
- delivers the goods on board the vessel;
- pays freight to the named port of destination; and
- obtains the required cargo insurance.
But — and this is the part that causes repeated confusion — risk normally transfers when the goods are on board at the port of shipment.
It does not wait until the cargo arrives at the destination port.
How much insurance does CIF require?
Under Incoterms® 2020, the default CIF insurance obligation is based on the more limited Institute Cargo Clauses (C) or equivalent cover unless the parties agree otherwise.
This differs from CIP, where the default standard is broader Institute Cargo Clauses (A) or similar cover.
FOB vs CIF: what is the difference?
FOB vs CIF is one of the most important Incoterms comparisons in shipping.
| FOB | CIF | |
|---|---|---|
| Main freight | Buyer arranges / pays | Seller arranges / pays |
| Risk transfer | On board at shipment port | On board at shipment port |
| Seller insurance obligation | No | Yes |
| Mode | Sea / inland waterway | Sea / inland waterway |
| Buyer controls ocean freight | Generally yes | Generally no |
The striking point is that FOB and CIF can share essentially the same risk-transfer point while allocating freight responsibility differently.
That illustrates why Incoterms should never be understood simply as “who pays transport”.
Which Incoterms are best for container shipping?
There is no single Incoterm that is automatically correct for every container shipment.
But the physical container transport chain creates an important distinction.
A seller may hand a sealed container to a carrier at an inland depot or container terminal long before the container reaches the ship.
If the contract says FOB, the formal risk-transfer point is linked to the cargo being on board the vessel.
That can create a gap between:
- physical custody;
- carrier handover;
- terminal handling; and
- contractual delivery.
For many containerised transactions, the ICC therefore points traders toward:
- FCA instead of FOB;
- CPT instead of CFR; and
- CIP as the insured multimodal counterpart where appropriate.
This does not mean FOB and CIF disappear from maritime trade.
They remain highly important, particularly in commodity and conventional shipborne trades where delivery on board the vessel accurately reflects the intended commercial arrangement.
Risk and cost are not the same thing
This is arguably the single most important concept in the entire Incoterms system.
Many traders assume:
“If the seller pays freight to China, the seller must carry the risk until China.”
That assumption can be wrong.
Under CFR and CIF, for example:
↓
RISK TRANSFERS TO BUYER
↓
SHIP SAILS
↓
SELLER CONTINUES PAYING CONTRACTED FREIGHT
↓
DESTINATION PORT
The same broad concept appears in CPT and CIP, where the seller can pay carriage to destination even though risk transferred when the cargo was handed to the carrier.
Who pays insurance under each Incoterm?
Only CIF and CIP impose a specific Incoterms obligation on the seller to arrange insurance for the buyer’s risk.
That does not mean insurance is unnecessary under the other nine rules.
It means the Incoterms rule itself does not require the seller to procure it.
| Rule | Seller required by Incoterms to obtain cargo insurance? |
|---|---|
| EXW | No |
| FCA | No |
| CPT | No |
| CIP | Yes — broader default cover |
| DAP | No specific obligation |
| DPU | No specific obligation |
| DDP | No specific obligation |
| FAS | No |
| FOB | No |
| CFR | No |
| CIF | Yes — minimum default cover |
Incoterms vs Bill of Lading
Incoterms and Bills of Lading operate in different legal and commercial relationships.
An Incoterms rule forms part of the sale contract between seller and buyer.
A Bill of Lading is a transport document connected with the carriage of goods and can perform several functions including acting as a cargo receipt and evidence of the contract of carriage.
The two interact, but they are not interchangeable.
| Incoterms | Bill of Lading | |
|---|---|---|
| Main relationship | Seller ↔ Buyer | Carrier ↔ contractual/cargo interests |
| Purpose | Delivery, costs, risk, responsibilities | Transport documentation / carriage functions |
| Issued as document? | No separate transport document | Yes |
| Can affect cargo delivery rights? | Not as document of title | Potentially, depending on B/L form |
Read the complete Tide Signal guide: Bill of Lading in Shipping: Types, Functions, Clauses and Risks.
Incoterms vs charterparty
This distinction is equally important for shipping professionals.
FOB, CFR and CIF may determine which party to a commodity sale is responsible for arranging ocean transport.
But the actual employment of the vessel can sit under an entirely separate charterparty.
For example:
FOB / CFR / CIF
↓
DETERMINES WHO ARRANGES CARRIAGE
↓
CHARTERING PARTY FIXES SHIP
↓
SEPARATE CHARTERPARTY
↓
LAYCAN · FREIGHT · LAYTIME · DEMURRAGE · NOR
The Incoterm does not replace charterparty provisions on freight, laytime, demurrage, Notice of Readiness or vessel performance.
See Tide Signal’s Types of Charter Parties in Shipping and Notice of Readiness guides for the vessel-contract side of the transaction.
What Incoterms do NOT cover
This is where many commercial misunderstandings begin.
Incoterms are important, but they are not a complete sales contract.
They do not by themselves determine:
- who legally owns the goods;
- when ownership or title transfers;
- the purchase price;
- how or when payment occurs;
- the currency of payment;
- product specifications;
- remedies for breach;
- force majeure;
- sanctions consequences;
- governing law;
- jurisdiction; or
- dispute-resolution procedure.
Incoterms and freight prices
The chosen Incoterm can materially change the commercial price quoted for the same cargo.
Consider one commodity sold through three structures:
| Sale basis | Seller’s quoted price may include |
|---|---|
| FOB | Goods plus seller-side costs through loading onboard |
| CFR | FOB-type value plus ocean freight to destination |
| CIF | CFR-type value plus required cargo insurance |
This is why commodity-market prices are often quoted on a specific trade basis.
A $500-per-tonne FOB price cannot be compared directly with a $520-per-tonne CIF price without understanding freight, insurance and the relevant ports.
For the shipping economics behind ocean transport, see Tide Signal’s Voyage Estimation guide.
How do you choose the right Incoterm?
There is no universally “best” Incoterm.
The right choice depends on the transaction.
- Is the cargo containerised, bulk, breakbulk or another form?
- Where will the seller physically hand over the goods?
- Who has the stronger freight-buying capability?
- Who wants control of the carrier?
- Who can perform export customs clearance?
- Who can legally perform import clearance?
- Who wants to arrange cargo insurance?
- At what point should risk transfer?
- Is the transport multimodal?
- Does a Letter of Credit require specific transport documents?
- Is the named point precise enough?
If the buyer wants to control main freight
FCA, FAS or FOB may be considered depending on the transport mode and physical delivery arrangement.
If the seller will pay main freight but risk should pass earlier
CPT, CIP, CFR or CIF may fit, depending on mode and insurance requirements.
If the seller will carry risk to destination
DAP, DPU or DDP may be more appropriate.
Common Incoterms mistakes
1. Writing “FOB” without naming the port
A complete reference should specify the relevant named port or point and the applicable Incoterms edition.
2. Using FOB automatically for every sea shipment
Container cargo handed to a carrier before vessel loading may be better suited to FCA.
3. Assuming CIF means risk passes at destination
It does not. Under CIF, risk transfers when the goods are delivered on board at shipment.
4. Confusing risk with ownership
Incoterms deal with transport-related risk, not legal title to the cargo.
5. Assuming DDP is always best for the buyer
DDP may look convenient, but sellers can face serious problems if they cannot legally act as importer or recover local taxes.
6. Ignoring the exact named point
“DAP Athens” is far less precise than a clearly identified delivery address or agreed point.
7. Assuming insurance is automatically provided
Only CIF and CIP impose specific seller insurance obligations under the Incoterms framework.
Incoterms 2020 FAQ
What does Incoterms mean?
Incoterms refers to the International Commercial Terms published by the International Chamber of Commerce. They provide standard rules for allocating delivery responsibilities, costs and transport risk between buyers and sellers.
What is the latest version of Incoterms?
Incoterms® 2020 remains the latest official ICC edition in 2026.
How many Incoterms are there?
There are 11 Incoterms® 2020 rules.
What are the 11 Incoterms?
EXW, FCA, CPT, CIP, DAP, DPU, DDP, FAS, FOB, CFR and CIF.
Which Incoterms are only for sea transport?
FAS, FOB, CFR and CIF are intended for sea and inland waterway transport.
What is FOB meaning in shipping?
FOB means Free On Board. The seller delivers the goods on board the buyer-nominated vessel at the named shipment port, where risk transfers to the buyer.
Who pays freight under FOB?
The buyer generally arranges and pays the main ocean carriage under FOB.
What is CIF meaning?
CIF means Cost, Insurance and Freight. The seller pays the freight and provides the required insurance to the named destination port, while risk transfers when the goods are on board at shipment.
What is the difference between FOB and CIF?
Under FOB, the buyer normally arranges the main carriage. Under CIF, the seller arranges and pays it and also obtains cargo insurance. Under both rules, risk transfers at the shipment end when the goods are on board.
What is EXW?
EXW means Ex Works. The seller makes the goods available at the named location and the buyer assumes most onward transport responsibilities.
What is DDP?
DDP means Delivered Duty Paid. The seller carries extensive responsibility through delivery at destination, including import clearance and applicable duties.
What is FCA?
FCA means Free Carrier. The seller delivers the goods to the buyer’s nominated carrier or person at the agreed location and normally performs export clearance.
What is the difference between FCA and FOB?
FCA transfers delivery at the agreed carrier handover point and can be used for any mode. FOB is limited to sea or inland waterway transport and uses delivery on board the vessel.
Should containers be sold FOB?
Not automatically. If a seller hands the container to a carrier at a terminal before vessel loading, FCA may more accurately reflect the actual delivery point.
Who pays insurance under CIF?
The seller must obtain the insurance required by the CIF rule for the buyer’s transport risk.
What is the difference between CIF and CIP insurance?
Incoterms® 2020 uses different default insurance standards. CIF generally requires the more limited Institute Cargo Clauses (C) level or similar cover, while CIP normally requires broader Institute Cargo Clauses (A) or similar cover.
Do Incoterms determine ownership?
No. Incoterms determine certain delivery, cost and risk obligations but do not determine when legal ownership or title passes from seller to buyer.
Are Incoterms legally mandatory?
No. The parties choose to incorporate the relevant Incoterms rule into their sales contract.
Do Incoterms replace a Bill of Lading?
No. Incoterms govern aspects of the buyer-seller sale relationship. A Bill of Lading is a transport document related to the carriage of goods.
Do Incoterms replace a charterparty?
No. A charterparty governs the employment and carriage obligations of the vessel. Incoterms govern aspects of the sale contract between buyer and seller.
Professional note: This guide is an educational explanation of Incoterms® 2020 and does not reproduce or replace the official ICC rules. Parties should consult the official ICC publication and obtain appropriate legal, customs or trade advice for specific transactions. Incoterms® is a registered trademark of the International Chamber of Commerce.
