Incoterms (International Commercial Terms), published by the International Chamber of Commerce (ICC), are eleven standardised three-letter rules that define the responsibilities of buyer and seller in international (and domestic) sales: who arranges and pays for carriage, who handles export/import clearance, who bears the cost of insurance, and — critically — the exact point where risk transfers from seller to buyer. The current set is Incoterms 2020.

Four rules apply to any mode of transport: EXW (Ex Works), FCA (Free Carrier), CPT, CIP, plus DAP, DPU and DDP. Four rules are only for sea and inland waterway: FAS, FOB, CFR and CIF. They range from minimum seller obligation (EXW, where the buyer does almost everything) to maximum (DDP, where the seller delivers cleared and duty-paid to the buyer's door).

A common pitfall is confusing the point of cost transfer with the point of risk transfer — under CIF and CFR, for example, the seller pays freight to destination but risk passes much earlier, when goods are loaded on board.

WATCH OUT Always name the place after the Incoterm (e.g. "FOB Shanghai"). Under CIF/CFR, cost reaches the destination but risk transfers at the port of loading.

EXWMin. seller duty

FOBRisk at ship rail

CIFSeller pays freight+ins

DDPMax. seller duty

🚚 Supply Chain & Logistics Fundamentals