Incoterms (International Commercial Terms) define the responsibilities of buyers and sellers in international trade. Understanding them is crucial for proper contract negotiation and cost management.
Incoterms are a set of internationally recognized rules published by the International Chamber of Commerce (ICC). They define who is responsible for:
The current version is Incoterms 2020, effective from January 1, 2020. There are 11 terms total: 7 for any transport mode and 4 specifically for sea/waterway transport.
Seller makes goods available at their premises. Buyer arranges everything from pickup onwards.
Seller just puts the parcel on the table at their warehouse. From that moment, the buyer is fully responsible.
You arrive at the seller's warehouse, pick up the goods, load them, export, ship, import and deliver them yourself.
Seller delivers goods to carrier at named place. Risk transfers when goods are handed to carrier.
Seller hands the parcel to the carrier at an agreed place. After that, responsibility shifts to the buyer.
Seller delivers goods to a terminal, port or truck arranged by the buyer. Once handed over, risk transfers.
Seller pays freight to named destination, but risk transfers when goods are handed to first carrier.
Seller pays for transport to destination, but risk transfers early - when the parcel is handed to the first carrier.
Seller books freight to the destination city, but if something happens during transport, the buyer carries the risk.
Like CPT, but seller also provides insurance to destination.
Same as CPT, but seller also includes insurance coverage for the journey.
Seller arranges transport and insurance to the destination, but risk still transfers at first carrier handover.
Seller delivers goods ready for unloading at named destination. Buyer handles unloading and import.
Seller brings the parcel to the buyer's address, ready for unloading. Import and unloading are buyer's responsibility.
Goods arrive by truck to buyer's warehouse door. Buyer unloads and clears customs.
Seller delivers and unloads goods at named destination. Buyer handles import clearance.
Seller delivers and unloads the parcel at destination. Buyer only handles import clearance.
Seller brings goods to a terminal or warehouse and unloads them using their equipment.
Seller delivers goods cleared for import at destination. Maximum seller obligation.
Seller takes full responsibility from start to finish, including import duties and taxes.
Buyer simply receives the goods at their door - everything else is handled by the seller.
Seller places goods alongside vessel at port. Sea freight only.
Seller places the parcel next to the vessel at the port. From there, buyer takes over.
Goods are delivered to the quay next to the ship. Buyer arranges loading and sea freight.
Seller loads goods onto vessel. Risk transfers when goods are on board. Sea freight only.
Seller loads the parcel onto the vessel. Once on board, risk transfers to buyer.
Seller handles port operations and loading; buyer takes responsibility for sea transport and beyond.
Seller pays freight to destination port, but risk transfers at loading. Sea freight only.
Seller pays for sea freight, but risk transfers once goods are loaded on the vessel.
Seller arranges shipping to destination port, but buyer bears risk during the sea voyage.
Like CFR, but seller also provides marine insurance. Sea freight only.
Same as CFR, but seller also includes marine insurance.
Seller loads goods, pays sea freight and insurance. Buyer still takes risk once goods are on board.
The moment when risk of loss or damage transfers from seller to buyer. This is NOT always the same as when costs transfer.
Incoterms define who pays for freight, insurance, loading, customs, etc. Costs and risks don't always transfer at the same point.
Most Incoterms require specifying a location (e.g., "DAP Munich" or "FOB Shanghai"). This affects where risk and costs transfer.
FOB, CFR, CIF, FAS are ONLY for sea freight. Using them for air or road transport creates ambiguity and potential disputes.
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