Every international sale answers three questions, whether the contract spells them out or not: who arranges the transport, who pays for each leg, and at what point does the risk of loss pass from seller to buyer. Incoterms — the standard three-letter trade terms published by the International Chamber of Commerce — exist so both sides answer those questions the same way. The current set is Incoterms 2020: eleven terms in total.
Eleven sounds like a lot to hold in your head. It isn’t, once you see the two patterns underneath them.
Two lenses that make all eleven click
Lens 1 — which transport modes a term is for. The eleven split into two families:
- Any mode (7): EXW, FCA, CPT, CIP, DAP, DPU, DDP. Use these for air, road, rail, containerized ocean — anything, including multimodal.
- Sea & inland waterway only (4): FAS, FOB, CFR, CIF. These assume the goods cross a ship’s rail at a port.
The single most common Incoterms mistake is using a sea-only term (FOB, CIF) for air freight or containerized cargo. A container handed to the line at a terminal isn’t “loaded on board” by the seller — so the technically correct term is FCA (or CIP), not FOB. It usually still “works” in practice, but it puts the risk-transfer point in the wrong place on paper.
Lens 2 — the first letter tells you the shape. Every term starts with E, F, C or D, and the letter tells you who does what:
- E (EXW) — seller does the least; buyer collects at origin.
- F (FCA, FAS, FOB) — buyer arranges the main carriage; risk passes to the buyer at origin.
- C (CPT, CIP, CFR, CIF) — seller arranges and pays the main carriage, but risk still passes at origin. (This split is the trap — more below.)
- D (DAP, DPU, DDP) — seller carries the goods all the way; risk passes at destination.
Hold those two lenses and any term decodes on sight.
The four you’ll use most
Ninety percent of trades run on these four, arranged from “seller does almost nothing” to “seller does almost everything.”
EXW — Ex Works (seller does the least)
The seller makes the goods available at their own door. Everything after that — loading, export clearance, freight, insurance, import duty, delivery — is the buyer’s. Risk passes the moment the goods are placed at the buyer’s disposal at origin.
EXW looks cheap on the invoice because the price is just the goods. In practice it hands the buyer the hardest part: arranging export formalities in a country where they may have no presence. For most importers, a term where the seller at least clears export (FCA) is easier to run.
FOB — Free On Board (the workhorse for ocean)
The seller delivers the goods, cleared for export, on board the vessel at the named origin port. Risk passes when the goods are on the ship. From there the buyer owns the ocean freight, insurance and everything at destination.
FOB is the most common term for full-container ocean freight for a reason: it draws a clean line at the origin port. The seller handles their own country; the buyer controls the main leg and picks their own carrier and forwarder. If you import FCL and want control of the ocean move, FOB is usually the right ask — though for containerized cargo, FCA is the more precise term (see below).
CIF — Cost, Insurance and Freight
The seller arranges and pays the ocean freight and a minimum level of insurance to the destination port. But — and this trips people up — risk still passes at origin, when the goods are on board, just like FOB. The seller pays for the freight; the buyer bears the risk during it.
CIF is convenient when you’d rather the seller book the main leg. The trade-off is control: you inherit the seller’s carrier, their schedule, and their minimum-cover insurance (see the insurance note below), and you still handle everything from the destination port inward.
DDP — Delivered Duty Paid (seller does the most)
The seller delivers the goods to the buyer’s door, import duties and clearance included. Risk passes only at final delivery. For the buyer it’s the simplest possible deal — one price, goods arrive.
The catch sits with the seller, who must clear customs in a country that isn’t theirs and eat any duty and tax surprises. DDP quotes are often padded to cover that uncertainty. It works best on predictable, repeat lanes. If you want door delivery but not the seller guessing at your duties, DAP (below) is often the smarter middle.
The others worth knowing
- FCA — Free Carrier. The container-age FOB. The seller delivers export-cleared goods to the carrier (or a named place) nominated by the buyer; risk passes at that handover. This is the correct term for containerized and air freight where FOB is technically wrong.
- CPT / CIP — Carriage Paid To / Carriage and Insurance Paid To. The any-mode versions of CFR/CIF: the seller pays carriage to a named destination (CIP adds insurance), but risk passes to the buyer the moment the goods reach the first carrier — earlier than people expect.
- DAP / DPU — Delivered At Place / Delivered at Place Unloaded. Seller delivers to destination but import duty is the buyer’s (the sensible alternative to DDP). Under DAP the buyer unloads; under DPU the seller unloads — the only term that puts unloading on the seller.
- FAS / CFR — Free Alongside Ship / Cost and Freight. Less common sea terms: FAS delivers alongside the vessel (used for bulk and project cargo); CFR is CIF without the insurance.
Full reference — all eleven
Any mode of transport
| Term | Name | Seller’s responsibility ends / risk passes |
|---|---|---|
| EXW | Ex Works | At seller’s premises; buyer handles everything after |
| FCA | Free Carrier | Handover to buyer’s carrier, export-cleared (origin) |
| CPT | Carriage Paid To | Handover to first carrier; seller pays carriage to destination |
| CIP | Carriage & Insurance Paid To | Like CPT + seller buys all-risk insurance |
| DAP | Delivered At Place | At destination, ready to unload; duty not paid |
| DPU | Delivered at Place Unloaded | At destination, unloaded by seller; duty not paid |
| DDP | Delivered Duty Paid | At destination, import cleared & duty paid |
Sea & inland waterway only
| Term | Name | Seller’s responsibility ends / risk passes |
|---|---|---|
| FAS | Free Alongside Ship | Goods alongside the vessel at origin port |
| FOB | Free On Board | Goods on board at origin port |
| CFR | Cost & Freight | On board at origin (seller pays freight, no insurance) |
| CIF | Cost, Insurance & Freight | On board at origin (seller pays freight + min. insurance) |
The trap: who pays ≠ who’s at risk
The C-terms (CPT, CIP, CFR, CIF) are where money is lost. The seller pays for the main carriage, but risk has already passed to the buyer — at the origin port (CFR/CIF) or at the first carrier (CPT/CIP). So if the vessel loses your container mid-ocean under CIF, the seller paid the freight, but it’s your loss to claim. Never assume “the seller booked and paid the freight” means “the seller carries the risk.” It doesn’t.
That’s also why insurance cover matters: under CIF the seller need only buy minimum cover (Institute Cargo Clauses C — a short list of named perils), while CIP since 2020 requires all-risk cover (Clauses A). If you’re buying CIF and relying on the seller’s policy, you may be far less protected than you think — buy your own cover or negotiate up.
What changed in Incoterms 2020
If you’re working from an older reference, three things moved:
- DAT became DPU (“Delivered at Terminal” → “Delivered at Place Unloaded”), broadening it beyond terminals.
- CIP’s insurance was raised to all-risk (Clauses A); CIF stayed at minimum (Clauses C).
- FCA gained an on-board bill of lading option, easing letter-of-credit payments for container shippers using the correct term.
How to actually choose
- Want control of the main freight and your own forwarder? Buy FCA (containers/air) or FOB (bulk/breakbulk ocean).
- Want the seller to book the freight but you’ll carry the risk? CIP / CIF — and check the insurance cover.
- Want goods at your door but keep control of your own duty? DAP.
- Want a hands-off, all-in landed price — and you trust the pricing? DDP.
- Only take EXW if you (or your forwarder) can genuinely handle export formalities at origin.
Whatever you pick, the chosen Incoterm belongs on the commercial invoice and the purchase order, stated with the named place — “FCA Shenzhen,” “DDP Houston.” A term without a named place is only half an instruction.
Not sure which term leaves you best protected on a specific lane? That’s a five-minute conversation — send us the details and we’ll map it out before you commit.