Who pays for transport? From what moment do the goods travel at your risk? Who handles customs? The Incoterms® answer in three letters. Well chosen and clearly written in the quote, they prevent most disputes.
1. What an Incoterm is
The Incoterms® are 11 rules published by the International Chamber of Commerce (ICC). The most recent version is Incoterms® 2020, in force since 1 January 2020 (checked on the ICC website on 21 October 2026).
An Incoterm says: who pays for which transport, at which place the risk passes from the seller to the buyer, and who handles the customs formalities. It does not say: the price, the payment date, or when the buyer becomes the owner. That is written in the contract.
2. How to write it
Always three elements: the rule, the exact place, the version. For example:
FOB port of Ho Chi Minh City, Incoterms® 2020
“FOB” on its own is not enough: without the exact place, everyone may understand something different.
3. From least to most for the seller
On the left, the buyer handles almost everything. On the right, the seller handles almost everything.
4. The 11 rules in one table
| Rule | The seller… | The risk passes to the buyer… | Transport |
|---|---|---|---|
| EXW Ex Works | makes the goods available at its own premises | as soon as the goods are made available at the seller’s premises | all |
| FCA Free Carrier | hands the goods to the carrier chosen by the buyer, cleared for export | when handed to the carrier | all |
| CPT Carriage Paid To | pays for transport to the destination | at departure, when handed to the first carrier | all |
| CIP Carriage and Insurance Paid To | like CPT, and insures the goods (extended cover) | at departure, when handed to the first carrier | all |
| DAP Delivered At Place | carries the goods to the destination, ready to be unloaded | on arrival, before unloading | all |
| DPU Delivered at Place Unloaded | carries and unloads the goods at the destination | on arrival, after unloading | all |
| DDP Delivered Duty Paid | handles everything, including customs clearance and import duties | on arrival | all |
| FAS Free Alongside Ship | delivers alongside the ship, at the port of departure | alongside the ship, at the port of departure | sea and inland waterways |
| FOB Free On Board | loads the goods on board, at the port of departure, cleared for export | once the goods are on board, at departure | sea and inland waterways |
| CFR Cost and Freight | pays the freight to the port of arrival | once the goods are on board, at departure | sea and inland waterways |
| CIF Cost, Insurance and Freight | like CFR, and insures the goods (minimum cover) | once the goods are on board, at departure | sea and inland waterways |
5. Trap no. 1: the “C” rules
With CPT, CIP, CFR and CIF, the seller pays for transport to the destination, but the risk passes to the buyer at departure. If the goods are damaged on the way, the buyer bears the loss: hence the importance of insurance. With CIF, the required insurance is minimum cover: ask for more if the goods are valuable.
6. Our advice for a small business
- Buying in Asia for the first time? Avoid EXW: the export formalities in the seller’s country would be your responsibility. FCA or FOB are simpler.
- Goods in a container? FCA, CPT or CIP are often better suited than FOB, CFR or CIF, which are designed for loading on board a ship.
- DDP obliges the seller to clear customs and pay duties in the buyer’s country: this is rarely simple for a small foreign business.
- Write the same Incoterm on the quote, the invoice and the contract.
This guide summarises the rules to help you understand them; it does not replace the official ICC text. For a large order, have your contract reviewed by a professional.