In the world of international shipping, three-letter acronyms hold immense power. None are more critical than Incoterms (International Commercial Terms). These 11 standardized rules, published by the International Chamber of Commerce (ICC), define the responsibilities of buyers and sellers in cross-border transactions.
Choosing the right Incoterm is not just paperwork—it’s a strategic decision that dictates who pays for what, who arranges transport, and, most importantly, where the risk of loss or damage transfers from the seller to the buyer.
Clift Express breaks down the essential Incoterms 2020 rules and provides a simple guide for selecting the best one for your business.
🧭 The Core of Incoterms: Responsibility, Cost, and Risk
Every Incoterm clarifies three key things at every stage of the journey :
- Responsibility (Tasks): Who arranges the carrier, prepares documents, or manages customs clearance?
- Cost: Who pays for freight, insurance, terminal handling fees, duties, and taxes?
- Risk: The critical point where the liability for loss or damage to the goods shifts from the seller to the buyer.
The 11 rules are divided into two main categories:
Group 1: Rules for Any Mode(s) of Transport (The 7 Rules)
These are the most versatile and are typically used for containerized goods, air freight, road freight, and intermodal transport.
| Term | Full Name | Seller’s Responsibility (Low to High) | Risk Transfer Point |
| EXW | Ex Works | Minimum: Seller makes goods available at their premises. | When the goods are picked up at the seller’s location. (Buyer takes all risk from there.) |
| FCA | Free Carrier | Seller delivers goods, cleared for export, to the carrier nominated by the buyer. | When the goods are delivered to the nominated carrier. |
| CPT | Carriage Paid To | Seller pays for carriage to destination, but risk transfers earlier. | When the goods are delivered to the first carrier. |
| CIP | Carriage and Insurance Paid To | Same as CPT, but Seller must also purchase insurance (higher level coverage is now required for CIP). | When the goods are delivered to the first carrier. |
| DAP | Delivered At Place | Seller handles all costs/risk to the named place of destination (ready for unloading). | At the named place of destination, before unloading. (Buyer handles import clearance/duties). |
| DPU | Delivered At Place Unloaded | Seller handles all costs/risk, including unloading at the named place of destination. | After the goods are unloaded at the named place. (Buyer handles import clearance/duties). |
| DDP | Delivered Duty Paid | Maximum: Seller handles all costs, risks, and duties until goods are delivered to the buyer’s premises. | At the named place of destination, ready for unloading. |
Group 2: Rules for Sea and Inland Waterway Transport (The 4 Rules)
These are used only for non-containerized cargo (like bulk, oil, or breakbulk) or when the seller can load the goods directly onto the vessel.
| Term | Full Name | Seller’s Responsibility (Low to High) | Risk Transfer Point |
| FAS | Free Alongside Ship | Seller places goods alongside the vessel at the named port of shipment. | When goods are alongside the ship. |
| FOB | Free On Board | Seller loads the goods on board the vessel nominated by the buyer. | When the goods are on board the vessel. (Most popular for ocean freight). |
| CFR | Cost and Freight | Seller pays for freight to destination port, but risk transfers at shipment port. | When the goods are on board the vessel. |
| CIF | Cost, Insurance, and Freight | Same as CFR, but Seller must also purchase minimum insurance (Institute Cargo Clauses C). | When the goods are on board the vessel. |
⚖️ Choosing the Right Incoterm: The Buyer vs. Seller Perspective
The ultimate decision often comes down to who wants control, and who has the superior logistics capabilities.
➡️ Maximum Control for the Buyer (Least Risk/Cost for Seller)
- Best for Seller: EXW (Ex Works).The seller simply makes the goods available. The buyer handles literally everything else: loading, export clearance, transport, and risk.
- Best for Experienced Buyer: FCA (Free Carrier).A safer choice than EXW, as the seller is responsible for export clearance and loading onto the first carrier. This gives the buyer control over the main freight leg, which often leads to better shipping rates.
➡️ Balanced Control (The Most Popular Terms)
- Best for Ocean Freight: FOB (Free On Board).This is the most common term. The seller pays for local transport and export clearance up to the point the goods are loaded onto the vessel. The buyer takes over cost and risk once the goods are on board.
➡️ Maximum Control for the Seller (Hassle-Free for Buyer)
- Best for Seller Control & Buyer Ease: DAP (Delivered At Place).The seller manages and pays for all transport up to the final agreed location. The buyer’s only responsibilities are unloading and handling the import customs/duties. This is a great, balanced choice.
- Best for Buyer: DDP (Delivered Duty Paid).The ultimate “door-to-door” service. The seller covers all costs and risks, including import clearance, duties, and taxes. While convenient for the buyer, the seller must be confident in managing the import process in a foreign country.
✅ Clift Express’s Pro-Tip
Always include the chosen Incoterm, the version year, and the named place clearly in your sales contract.
Example: FOB Port of Houston, Incoterms 2020
If you are unsure which term offers the best balance of cost efficiency and risk management for your shipment, don’t guess. The experts at Clift Express specialize in structuring trade agreements that protect your bottom line.
Ready to discuss your next shipment? Contact us today for a consultation on optimizing your logistics strategy.
