JaEtUKIf you buy or sell goods across borders, you will meet three-letter codes such as EXW, FOB and DAP. They come from Incoterms, the rules published by the International Chamber of Commerce (ICC). This guide lists the eleven Incoterms 2020 rules in plain English. It is general information only; for any real contract, take advice and read the ICC's official text.
Why they exist
An Incoterm names the point at which responsibility for the goods passes between seller and buyer, and sets out who arranges transport, insurance and customs clearance. Agreeing one early avoids misunderstandings later.
Rules for any mode of transport
- EXW (Ex-Works): the seller makes the goods available at its premises; the buyer handles all transport and bears the risk from there.
- FCA (Free Carrier): the seller hands the goods to the buyer's nominated carrier, and risk passes at that handover.
- CPT (Carriage Paid To): the seller pays freight to the named destination; the buyer handles import clearance and onward delivery.
- CIP (Carriage and Insurance Paid To): as CPT, but the seller also arranges minimum-cover insurance for transit.
- DAP (Delivered At Place): the seller bears the risk of delivering the goods to the named destination, ready for unloading.
- DPU (Delivered at Place Unloaded): the seller delivers and unloads the goods at the named destination, bearing risk until unloading is complete.
- DDP (Delivered Duty Paid): the seller bears all costs and risks to the destination, including import clearance and duties.
Rules for sea and inland waterway only
- FAS (Free Alongside Ship): the seller places the goods alongside the vessel at the port of shipment; the buyer bears costs from that point.
- FOB (Free On Board): the seller loads the goods onto the buyer's nominated vessel.
- CFR (Cost and Freight): the seller pays freight to the destination port; risk passes once the goods are on board.
- CIF (Cost, Insurance and Freight): as CFR, but the seller also buys insurance.
A short checklist before you agree one
- Name the exact place or port after the code, not just the code.
- State which version you mean, for example Incoterms 2020.
- Check who is responsible for export and import clearance.
- Confirm insurance arrangements in writing.
- Use the rule that matches your mode of transport.
Incoterms are one part of a sales contract, not the whole of it. Current customs, tax and regulatory requirements should always be checked with official sources and a qualified adviser before you trade.