Incoterms explained simply
Incoterms decide who pays for what, and who carries the risk, when goods move between a buyer and a seller. Here are all 11 rules in plain English, a side-by-side chart and a tool to help you choose.
What are Incoterms?
Incoterms are a set of 11 three-letter trade terms published by the International Chamber of Commerce (ICC). The current version is Incoterms® 2020. Adding one to your purchase order or commercial invoice, for example "FOB Shenzhen, Incoterms 2020", tells everyone three things:
Who pays for each step
Loading, export customs, the main freight, insurance, unloading, import customs, and the duty and VAT.
Where the risk passes
The exact point where lost or damaged goods stop being the seller's problem and become the buyer's.
Who does the paperwork
Who handles the export and import declarations, and who needs an EORI number in each country.
Which Incoterm should I use?
Answer three questions to find the rule that fits. The recommended rule is highlighted in the chart below.
All 11 rules side by side
Tap a rule to highlight it. S = seller, B = buyer. Under D rules the seller carries the risk until delivery, so often insures the goods even though it isn't required.
| Who pays or does it? | EXWany mode | FCAany mode | FASsea only | FOBsea only | CFRsea only | CIFsea only | CPTany mode | CIPany mode | DAPany mode | DPUany mode | DDPany mode |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Loading at origin | B | S | S | S | S | S | S | S | S | S | S |
| Export clearance | B | S | S | S | S | S | S | S | S | S | S |
| Main freight | B | B | B | B | S | S | S | S | S | S | S |
| Insurance required | – | – | – | – | – | S | – | S | – | – | – |
| Unloading at destination | B | B | B | B | B | B | B | B | B | S | B |
| Import clearance | B | B | B | B | B | B | B | B | B | B | S |
| Import duty & VAT | B | B | B | B | B | B | B | B | B | B | S |
| Risk passes to buyer | At the seller's premises, once the goods are made available | When the goods are handed to your carrier | Alongside the ship at the port of shipment | Once the goods are on board at the port of shipment | Once the goods are on board at the port of shipment | Once the goods are on board at the port of shipment | When the goods are handed to the first carrier | When the goods are handed to the first carrier | At the named destination, ready for unloading | Once the goods are unloaded at the destination | At the named destination, ready for unloading |
Every Incoterm in plain English
Ex Works
Your supplier makes the goods available at their premises. You handle everything from there, including loading and export clearance.
Free Carrier
The seller clears the goods for export and hands them to the carrier you've chosen, at their premises or another named place.
Free Alongside Ship
The seller delivers the goods alongside your ship at the port of shipment, cleared for export.
Free On Board
The seller loads the goods onto your ship at the port of shipment, cleared for export. You pay the sea freight from there.
Cost and Freight
The seller pays the sea freight to your destination port, but the risk passes to you once the goods are on board.
Cost, Insurance and Freight
As CFR, but the seller also buys minimum insurance cover for the voyage.
Carriage Paid To
The seller pays the freight to a named destination, but the risk passes to you when the goods are handed to the first carrier.
Carriage and Insurance Paid To
As CPT, but the seller also buys insurance, at a higher level of cover than CIF.
Delivered at Place
The seller delivers the goods to your named place, ready for unloading. You clear import customs and pay duty and VAT.
Delivered at Place Unloaded
As DAP, but the seller also unloads the goods at the destination.
Delivered Duty Paid
The seller delivers to your door and handles everything, including import clearance, duty and VAT.
What most ecommerce brands should use
Buying stock from Asia
Ask your supplier for FOB (by sea) or FCA (by air or in containers). You then choose the freight forwarder, so you control the cost and timing. Get a freight quote.
Be wary of EXW
Ex Works looks cheapest, but it makes you responsible for export customs in your supplier's country, which can be hard to arrange from the UK.
Selling to consumers abroad
Use DDP (or IOSS for EU orders up to €150) so your customer pays nothing at the door. Under DAP, they pay the import charges, and some refuse the parcel. Selling to the EU.
Always name the place
"FOB" on its own isn't enough. Write the rule, the place and the version, for example "FOB Ningbo, Incoterms 2020".
Check the full cost
The Incoterm changes who pays for what, but not what it costs. Use our duty and VAT calculator to work out the landed cost.
Deliver into your 3PL
Whatever the rule, make sure the delivery address, booking details and paperwork match what your warehouse needs to check your stock in.
Incoterms, answered
What are Incoterms?
What is the difference between FOB and CIF?
What is the difference between DAP and DDP?
Which Incoterm is best for importing from China?
Which Incoterms can be used for any transport?
Do Incoterms cover payment?
A plain-English summary for guidance only. The official Incoterms® 2020 rules are published by the International Chamber of Commerce. Incoterms® is a registered trademark of the ICC. Check contract terms with your adviser.
Need help choosing?
Tell us what you're shipping and where from, and we'll recommend the right terms and quote the freight straight into our Thame or Rotterdam warehouse.