Short for International Commercial Terms, Incoterms® are terms of agreement between the seller and buyer that define who is responsible for payments, insurance, customs clearance, and handling goods throughout the freighting process. Incoterms® are defined and periodically revised by the International Chamber of Commerce (ICC), establishing internationally recognized rules for sellers and buyers involved in export transactions.
Incoterms® 2020 outlines 11 separate rules—seven that apply to all modes of transport and four that apply exclusively to sea and inland waterway transport.
Rules for All Modes of Transport:
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EXW – Ex Works (insert place of delivery)
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FCA – Free Carrier (insert named place of delivery)
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CPT – Carriage Paid To (insert place of destination)
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CIP – Carriage and Insurance Paid To (insert place of destination)
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DAP – Delivered at Place (insert named place of destination)
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DPU – Delivered at Place Unloaded (insert place of destination)
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DDP – Delivered Duty Paid (insert place of destination)
Rules for Sea and Inland Waterway Transport Only:
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FAS – Free Alongside Ship (insert name of port of loading)
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FOB – Free on Board (insert named port of loading)
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CFR – Cost and Freight (insert named port of destination)
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CIF – Cost, Insurance and Freight (insert named port of destination)
By understanding and agreeing upon the applicable Incoterms® rule throughout the freight journey, buyers and sellers can avoid miscommunication regarding responsibility for the cargo, including the exact point at which it transfers from one party to the other.