Incoterms are standard delivery terms that define at which point cost and risk pass between buyer and seller. They are published by the International Chamber of Commerce (ICC); the current edition is Incoterms 2020.
Incoterms do not govern title and do not determine the method of payment. They answer two questions only: who pays the cost, and where does risk pass?
Usable for any mode of transport
| EXW | Delivery at the seller's works; risk and cost with the buyer from the start |
|---|---|
| FCA | Delivery to the carrier at a named place |
| CPT | Carriage to destination paid by the seller; risk passes on handover |
| CIP | CPT plus insurance paid by the seller |
| DAP | Delivery at the named place on the vehicle |
| DPU | Delivery at the named place, unloaded |
| DDP | Delivery at destination, customs cleared; the widest seller obligation |
For sea and inland waterway only
| FAS | Delivery alongside the ship |
|---|---|
| FOB | Delivery on board; risk passes on the ship |
| CFR | Freight paid by the seller; risk passes on loading |
| CIF | CFR plus insurance paid by the seller |
Its relationship with the warehouse
For cargo arriving at a warehouse, the delivery term determines which cost belongs to whom: unloading, haulage, insurance and customs charges are shared accordingly.
Under CIF, for instance, freight and insurance are the seller's; but import customs and warehouse charges belong to the buyer. Write this clearly into the contract.
The most common mistake
Using terms specific to sea transport (FOB, CIF) for container shipments. Because a container is handed over at the terminal, the point of risk transfer is in practice better defined by FCA/CIP.
The second common mistake is underestimating the tax and conformity obligations in the destination country on a DDP sale.