What are Incoterms and why are they important?
Incoterms® are 11 internationally recognised trade rules published by the International Chamber of Commerce. They define how transport tasks, costs and risks are divided between the buyer and seller, including who arranges freight and who handles export or import clearance. The current rules are Incoterms® 2020. Each shipment should identify the chosen three-letter rule, the named delivery place or port and the applicable version, such as "FCA Shanghai Terminal, Incoterms® 2020."
What is EXW — Ex Works?
Under EXW, the seller makes the goods available at its premises or another named location. The buyer is responsible for collection, loading, export clearance, main transport, import clearance and final delivery. Key difference: EXW places the least transport responsibility on the seller and the most responsibility on the buyer.
What is FCA — Free Carrier?
Under FCA, the seller delivers the goods to the buyer's nominated carrier at an agreed location and completes export clearance. Risk transfers to the buyer when the goods are delivered to that carrier. Key difference: Unlike EXW, the seller handles export clearance and formally delivers the goods to the carrier. FCA is commonly more suitable than FOB where containerised goods are handed over at a terminal before being loaded onto a vessel.
What is CPT — Carriage Paid To?
Under CPT, the seller delivers the goods to a carrier and pays the transport cost to the named destination. However, risk transfers to the buyer when the goods are handed to the first carrier, not when they reach the destination. Key difference: The seller pays the main freight, but the buyer carries the transport risk after the initial handover. The seller is not required to arrange cargo insurance.
What is CIP — Carriage and Insurance Paid To?
Under CIP, the seller delivers the goods to a carrier, pays transport to the named destination and arranges cargo insurance. Risk still transfers to the buyer when the goods are handed to the first carrier. Key difference: CIP works like CPT but includes seller-arranged insurance, generally at a higher required level of cover than CIF. It can be used for air, road, rail, sea or multimodal shipments.
What is DAP — Delivered at Place?
Under DAP, the seller arranges transport and carries the risk until the goods reach the named destination, ready for unloading. The buyer is responsible for unloading, import customs clearance and applicable import duties and taxes. Key difference: DAP gives the seller responsibility for delivery to the destination but leaves import clearance and unloading with the buyer.
What is DPU — Delivered at Place Unloaded?
Under DPU, the seller transports the goods to the named destination and unloads them from the arriving vehicle. The buyer generally completes import clearance and pays applicable import duties and taxes. Key difference: DPU is the only Incoterms® 2020 rule that requires the seller to unload the goods at the destination.
What is DDP — Delivered Duty Paid?
Under DDP, the seller arranges transport to the named destination and completes both export and import customs formalities, including applicable import duties. The buyer generally only receives and unloads the goods. Key difference: DDP places the greatest responsibility on the seller and the least on the buyer. The seller must be legally and practically able to complete import clearance in the destination country.
What is FAS — Free Alongside Ship?
Under FAS, the seller delivers the goods alongside the buyer's nominated vessel at the named port of shipment and completes export clearance. The buyer is responsible for loading the goods onto the vessel, ocean freight, insurance and the remaining journey. Key difference: Risk transfers while the goods are alongside the vessel, before they are loaded onboard. FAS is only used for sea or inland waterway transport.
What is FOB — Free On Board?
Under FOB, the seller completes export clearance and loads the goods onto the buyer's nominated vessel at the named port of shipment. Risk transfers to the buyer once the goods are onboard the vessel. Key difference: Unlike FAS, the seller is responsible for loading the goods onto the vessel. Unlike CFR and CIF, the buyer arranges and pays for the main ocean freight.
What is CFR — Cost and Freight?
Under CFR, the seller loads the goods onto the vessel and pays the ocean freight to the named destination port. Risk transfers to the buyer when the goods are onboard the vessel at the origin port. Key difference: The seller pays the freight to the destination port, but the buyer carries the shipping risk from the origin port. The seller is not required to arrange insurance.
What is CIF — Cost, Insurance and Freight?
Under CIF, the seller loads the goods onto the vessel and pays for ocean freight and cargo insurance to the named destination port. Risk still transfers to the buyer when the goods are onboard the vessel at the origin port. Key difference: CIF works like CFR but includes seller-arranged insurance. It is limited to sea and inland waterway transport and requires a lower default level of insurance than CIP.
Which Incoterms can be used for any form of transport?
EXW, FCA, CPT, CIP, DAP, DPU and DDP can be used for road, rail, air, sea or multimodal transport. FAS, FOB, CFR and CIF are specifically intended for sea and inland waterway shipments where delivery occurs alongside or onboard a vessel.
What is the difference between the C and D Incoterms?
Under the C terms — CPT, CIP, CFR and CIF — the seller pays for transport to a named destination, but risk transfers to the buyer earlier in the shipment. Under the D terms — DAP, DPU and DDP — the seller retains the transport risk until the goods reach the named destination.
Do Incoterms determine who owns the goods?
No. Incoterms allocate transport responsibilities, costs and risk, but they do not determine when legal ownership transfers, the sale price, payment terms or remedies for breach of contract. Those matters should be addressed separately in the sale agreement.
Do Incoterms automatically include cargo insurance?
No. Only CIP and CIF require the seller to arrange insurance for the buyer's transport risk. Under the other Incoterms, the buyer and seller should separately determine whether cargo insurance is required and who will arrange it.
Can Logistix AU help me understand which Incoterm applies?
Yes. Logistix AU can explain how a proposed Incoterm affects freight arrangements, customs clearance, insurance and delivery costs. The final Incoterm should be agreed between the buyer and seller and recorded in the commercial contract and invoice.