Incoterms Guide for International Shipping

What Are Incoterms?

Incoterms, also known as International Commercial Terms, are globally accepted trade rules that define the responsibilities of buyers and sellers in international transactions. These rules help both parties clearly understand who is responsible for transportation, risk, insurance, customs clearance, and delivery.

Created and maintained by the International Chamber of Commerce (ICC), Incoterms are revised periodically to reflect changes in global trade practices.

Understanding the Contract of Carriage

The selected Incoterm determines which party is responsible for arranging each stage of transportation. In international shipping, transport is generally divided into three stages:

1. Pre-Carriage

This is the movement of goods from the seller’s premises to the export port, airport, or terminal.

2. Main Carriage

This refers to the primary international transport from the seller’s country to the buyer’s country.

3. On-Carriage

This is the final delivery stage from the arrival port or airport to the buyer’s final delivery location.

Main Categories of Incoterms

Incoterms are grouped into four broad categories:

E Group: Minimum responsibility for seller
F Group: Seller delivers goods to buyer’s nominated carrier
C Group: Seller arranges and pays for main transport
D Group: Seller bears maximum delivery responsibility

Common Incoterms Explained

EXW (Ex Works)

Under EXW, the seller’s duty is complete once the goods are made available at their premises or another named place. The buyer handles pickup, export clearance, transport, insurance, and import formalities.

FCA (Free Carrier)

The seller delivers the goods, cleared for export, to the carrier chosen by the buyer at a specified place. After delivery, the buyer takes over transport responsibility.

FAS (Free Alongside Ship)

The seller places goods alongside the vessel at the agreed port. The buyer is responsible from that point onward, including loading, freight, and import clearance.

FOB (Free On Board)

The seller’s responsibility ends once the goods are loaded onto the vessel at the port of shipment. The buyer assumes risk and cost after loading.

CFR (Cost and Freight)

The seller pays transportation costs to the destination port. However, risk transfers to the buyer once goods are loaded onto the ship.

CIF (Cost, Insurance and Freight)

Similar to CFR, but the seller also arranges minimum cargo insurance for the buyer’s benefit during transit.

CPT (Carriage Paid To)

The seller pays freight to the named destination, but risk transfers once goods are handed over to the first carrier.

CIP (Carriage and Insurance Paid To)

The seller pays for transport and insurance up to the agreed destination. Risk passes to the buyer after delivery to the first carrier.

DAF (Delivered at Frontier)

The seller delivers goods to a specified border point before customs import clearance. The buyer handles import procedures and onward transport.

DES (Delivered Ex Ship)

The seller delivers goods on board the vessel at the destination port. The buyer is responsible for unloading and import customs.

DEQ (Delivered Ex Quay)

The seller delivers goods after unloading at the destination port quay. Import clearance and related charges are usually the buyer’s responsibility.

DDU (Delivered Duty Unpaid)

The seller arranges delivery to the destination but does not pay import duties or taxes. These are handled by the buyer.

DDP (Delivered Duty Paid)

The seller takes full responsibility for delivery, including shipping, customs clearance, duties, and taxes, until the goods reach the buyer.

Incoterms by Transport Mode

Suitable for Any Mode of Transport

Suitable for Sea and Inland Waterway Transport

Why Incoterms Matter

Using the correct Incoterm helps avoid confusion, disputes, and unexpected costs. It ensures both parties understand:

Delivery obligations
Risk transfer points
Freight payment responsibility
Customs clearance duties
Insurance coverage

A clear understanding of Incoterms makes international trade smoother, safer, and more efficient.