04/06/2026
Most people in international trade hear terms like FOB, CIF, EXW, or DDP almost every day.
But surprisingly, many still do not fully understand:
• who pays for what,
• where risk transfers,
• who arranges freight,
• and who handles customs clearance.
That is exactly why Incoterms® are so important in global trade.
Incoterms® (International Commercial Terms) were introduced by the International Chamber of Commerce (ICC) in 1936 to create one common global language for buyers and sellers.
Today, Incoterms® 2020 contains 11 rules that define responsibilities between exporter and importer.
Here’s a simplified breakdown:
🔹 EXW (Ex Works)
Seller makes the goods available at their premises.
Buyer handles almost everything from pickup onward.
🔹 FCA (Free Carrier)
Seller delivers goods to the buyer’s nominated carrier.
Very common in container shipments.
🔹 CPT (Carriage Paid To)
Seller pays transportation up to destination.
Risk transfers earlier when cargo is handed to the carrier.
🔹 CIP (Carriage and Insurance Paid To)
Same as CPT, but seller also arranges insurance.
🔹 DAP (Delivered At Place)
Seller delivers goods to the destination point.
Buyer handles import customs clearance and duties.
🔹 DPU (Delivered at Place Unloaded)
Seller delivers and unloads the cargo at destination.
🔹 DDP (Delivered Duty Paid)
Seller handles almost everything including import duty.
Maximum responsibility for the seller.
🔹 FAS (Free Alongside Ship)
Seller places cargo alongside the vessel at port.
Used mainly in bulk and marine cargo.
🔹 FOB (Free On Board)
Seller loads cargo onto the vessel.
Risk transfers once cargo is onboard.
🔹 CFR (Cost and Freight)
Seller pays ocean freight, but risk transfers at loading port.
🔹 CIF (Cost Insurance and Freight)
Same as CFR, plus seller arranges insurance.
One important thing:
Incoterms do NOT decide ownership transfer or payment terms.
They mainly define:
✔ Cost responsibility
✔ Risk transfer
✔ Transportation obligations
✔ Customs responsibilities
Choosing the wrong Incoterm can create:
• unexpected costs,
• shipment delays,
• disputes,
• and insurance complications.
That is why every logistics professional, exporter, importer, procurement professional, and supply chain student should understand Incoterms properly.
Global trade does not run only on products.
It runs on clearly defined responsibilities.
credit to the owner: 🤝💪