Customs 101: Incoterms: Learn Your Terms of Sale
Incoterms are standardized terms that define responsibilities and risks in international freight forwarding and commercial transactions. Created by the International Chamber of Commerce, these 3-letter acronyms help clarify the logistics of transporting goods across borders.
- Incoterms simplify international trade by providing clear definitions of roles in shipping.
- Common examples include EXW, FCA, and DDP, each outlining specific responsibilities for buyers and sellers.
- Understanding these terms is essential for anyone involved in global commerce and logistics.
Incoterms, or International Commercial Terms, are standardized terms established by the International Chamber of Commerce to clarify the responsibilities of buyers and sellers in international trade. They define key aspects of freight forwarding and transactions, ensuring both parties understand their obligations regarding shipping, insurance, and delivery.
Incoterms are a standard set of terminology used to define key parts of freight forwarding and international commercial transactions. These pre-defined terms were created by the International Chamber of Commerce (ICC). Incoterm is a short way to say International Commercial Terms.
Incoterms are always a 3-letter acronym, intended to clarify tasks and risks associated with the transportation and delivery of goods.
These terms are standardized internationally, which allows for clearly understand international trade and contract formats across many countries and languages. 
Diagram Source: InternationalIncoterms.Guru, J Montezuma, Creative Commons BY-SA CC 4.0
Common examples of Incoterms
- EXW: Ex works (Air or Ocean)
- Seller makes goods available at their facility
- Buyer bears all costs & risks thereafter
- FCA: Free Carrier (Air or Ocean)
- Seller is responsible for getting goods loaded onto a truck for transport
- Buyer bears all costs & risks thereafter
- FAS: Free Alongside Ship (Ocean)
- Exporter is responsible for clearing goods at customs and delivering them to the vessel at point of origin.
- NOTE: Not generally used for containerized goods.
- FOB: Free on Board (Ocean)
- Seller is responsible for getting the goods to the port of export & loaded on the vessel
- Buyer takes on all costs & risks thereafter
- CFR: Cost and Freight
- Seller responsible for delivery of goods from their warehouse to the agreed destination port, including paying for transportation, delivery and clearing customs.
- CIF: Cost, Insurance & Freight
- Seller has more responsibility and they will arrange transportation, freight duties and insurance.
- RISKS: supplier chooses insurance (likely to choose cheapest, most basic insurance; CIF stops after goods arrive at port, if damage or storage occurs at port, that is importers responsibility)
- CPT: Carriage Paid To (Air or Ocean)
- Relatively uncommon incoterm except for larger importer who have own port agents
- While seller pays for transport of goods, buyer assumes risk (and insurance) once goods leave country or port of seller.
- CIP: Carriage and insurance Paid To (Air or Ocean)
- Seller pays for, transportation, insurance and export clearance from point of origin to end destination.
- DAT: Delivery at Terminal (Air or Ocean)
- Seller responsible for the goods up until the end destination. Buyer pays for customs clearance and taxes at destination.
- DAP: Delivered at Place (Air or Ocean)
- Seller is responsible for getting the goods to a named place agreed upon by the buyer
- Buyer takes control of the goods after arrival at the named place; excluding Customs clearance
- DDP: Delivered Duty Paid (Air or Ocean)
- Seller is responsible for delivering the goods to the buyer’s door; including Customs clearance