Incoterms® are a set of standardized rules published by the International Chamber of Commerce (ICC) that define the obligations of buyers and sellers in international trade contracts. These rules specify the division of costs, risks, and responsibilities between parties, including who manages export and import customs clearance, freight, and insurance.

Why It Matters for Shippers

Adhering to Incoterms® is critical for supply chain risk management and financial planning. By clearly defining the point of risk transfer and cost allocation, Incoterms® prevent costly disputes over who is liable for damaged goods in transit or responsible for unpaid duties. For logistics coordinators, choosing the correct term ensures accurate budget forecasting and guarantees compliance with international trade laws.

The 11 Incoterms® Rules (Incoterms® 2020)

The rules are divided into two categories based on the mode of transport required.

Any Mode of Transport (7 Rules)

• 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

Sea & Inland Waterway Only (4 Rules)

• FAS – Free Alongside Ship
• FOB – Free On Board
• CFR – Cost and Freight
• CIF – Cost, Insurance and Freight

Quick Reference: The 4 Most Common Terms

EXW (Ex Works): The buyer takes all responsibility once goods are left the seller's premises. The buyer pays for export clearance and all freight costs.

FOB (Free On Board): The seller delivers goods on board the vessel at the named port of shipment. Risk transfers to the buyer once goods are on board.

CIF (Cost, Insurance and Freight): The seller pays for freight and minimum insurance to the port of destination, but risk transfers when goods are loaded on the vessel.

DDP (Delivered Duty Paid): The seller bears all risks and costs, including duties, until goods are delivered to the buyer's specified destination.

Note on Incoterms® 2020 Update

The International Chamber of Commerce released Incoterms® 2020, which became optional for contracts in March 2021. Key updates include the addition of DPU (Delivered at Place Unloaded), allowing for safer delivery scenarios involving the unloading of goods at the place of destination. Additionally, 2020 clarified insurance obligations for CIF and CIP rules, ensuring minimum insurance coverage aligns with Institute Cargo Clauses (C). It is recommended to explicitly reference the year in contract clauses (e.g., "Incoterms® 2020") to ensure compliance.