Eleven three-letter rules that decide who books the freight, who clears customs, who insures the goods and the precise moment a damaged shipment stops being the seller's problem. Here is each one in plain English, with the chart.
Incoterms are the eleven trade terms published by the International Chamber of Commerce that a buyer and seller write into a sales contract, such as FCA Shanghai Incoterms 2020. Each rule settles four things: where the seller’s delivery ends and the risk passes to the buyer, who pays for the main transport, who clears the goods through customs at each end, and whether anyone must insure them. They do not decide when the buyer pays or when ownership passes. The current edition is Incoterms 2020.
Written by Aleksandrs Smetanins, President, Qeep Logistics · Last reviewed September 30, 2026
Every Incoterm answers the same four questions: where the seller's delivery obligation ends, who pays for the main transport, who clears the goods through customs at each end, and who has to buy insurance. The table puts all eleven side by side, grouped from the least the seller does, EXW, to the most, DDP.
Read the delivery column carefully, because it is the one that matters when something goes wrong. It is the moment the risk of loss or damage moves from the seller to the buyer. Under the C rules that moment comes early, at origin, even though the seller has paid for the freight all the way to destination. That is the single most misunderstood point in the whole set.
| Rule | Delivery and risk passes | Main freight paid by | Export clearance | Import clearance | Insurance |
|---|---|---|---|---|---|
| EXW Ex Works | Goods made available at the seller's premises, not loaded | Buyer | Buyer | Buyer | Not required |
| FCA Free Carrier | Handed to the buyer's carrier at the named place | Buyer | Seller | Buyer | Not required |
| FAS Free Alongside Ship | Placed alongside the vessel at the port of loading | Buyer | Seller | Buyer | Not required |
| FOB Free On Board | Loaded on board the vessel at the port of loading | Buyer | Seller | Buyer | Not required |
| CFR Cost and Freight | Loaded on board at the port of loading | Seller, to destination port | Seller | Buyer | Not required |
| CIF Cost, Insurance and Freight | Loaded on board at the port of loading | Seller, to destination port | Seller | Buyer | Seller, Clauses (C) minimum |
| CPT Carriage Paid To | Handed to the first carrier at origin | Seller, to named destination | Seller | Buyer | Not required |
| CIP Carriage and Insurance Paid To | Handed to the first carrier at origin | Seller, to named destination | Seller | Buyer | Seller, Clauses (A) minimum |
| DAP Delivered at Place | Arrived at the named place, ready for unloading | Seller | Seller | Buyer | Not required |
| DPU Delivered at Place Unloaded | Unloaded at the named place | Seller | Seller | Buyer | Not required |
| DDP Delivered Duty Paid | Arrived at the named place, cleared for import, ready for unloading | Seller | Seller | Seller | Not required |
Summary of the Incoterms 2020 rules in our own words. FAS, FOB, CFR and CIF are for sea and inland waterway transport only; the other seven work for any mode. The ICC publication is the authoritative text, and a contract should always name the rule, the place and the edition, for example FCA Shenzhen Yantian terminal, Incoterms 2020.
Seven of the eleven rules work for truck, rail, air, ocean or any combination. Those are the ones to use for containers, for air freight and for anything that crosses a land border, because they tie delivery to a carrier or a named place rather than to the rail of a ship.
They fall into three families. With EXW and FCA the buyer runs the main transport. With CPT and CIP the seller pays for the main transport but hands the risk over at origin. With DAP, DPU and DDP the seller carries both the cost and the risk all the way to the buyer's named place.
The seller makes the goods available at its own premises and does nothing else: no loading, no export clearance. The buyer carries every cost and risk from collection onwards. Simple on paper, awkward in practice, because the buyer becomes responsible for export formalities in the seller's country. FCA at the seller's premises is usually the better way to get the same deal.
The seller clears the goods for export and hands them to the buyer's carrier at a named place. At the seller's premises, delivery is complete once the goods are loaded onto the buyer's vehicle. Anywhere else, it is complete when they arrive on the seller's vehicle ready for unloading. Since 2020 the parties can agree that the buyer's carrier will issue an on-board bill of lading to the seller, which solves the letter of credit problem that used to push people back to FOB.
The seller pays for transport to the named destination, but the risk passes to the buyer as soon as the goods are handed to the first carrier at origin. If the goods are damaged on the ocean leg, it is the buyer's loss, even though the seller booked and paid for that leg.
CPT plus insurance. The seller must insure the goods for the buyer's benefit to the named destination, and since 2020 the default is the broad Institute Cargo Clauses (A) cover, for at least the contract value plus 10 percent. Risk still passes at origin; the insurance is what protects the buyer on the way.
The seller carries the cost and the risk until the goods arrive at the buyer's named place, still on the truck and ready for unloading. The buyer unloads, clears the goods for import and pays the duties and taxes. For a Canadian importer this is often the cleanest delivered option, because the customs entry stays in the importer's own hands.
Like DAP, except the seller must also unload the goods at the named place, and the risk passes only once they are on the ground. It replaced DAT in 2020. Use it only when the seller can actually arrange unloading at that place; otherwise DAP is the safer choice.
The maximum for the seller: transport, risk and import clearance, including paying the duties and taxes, all the way to the buyer's named place. The seller becomes the importer of record in the destination country, which is exactly why it goes wrong so often. A foreign seller shipping DDP into Canada has to operate as a non-resident importer with its own Canadian customs accounts, and the buyer loses control of how its own imports are declared.
Four rules are written for goods loaded directly onto a vessel. They all pass risk at the port of loading, either alongside the ship or once the goods are on board, which made sense for break bulk cargo lifted by the ship's own gear.
For containers they fit badly. A container is handed to the terminal days before the vessel sails, so under FOB, CFR or CIF the seller still carries the risk of a box it no longer controls. The ICC's own guidance is to use FCA, CPT or CIP for containerised freight instead. FOB remains everywhere in practice, and it works for bulk, but for a 40-foot container FCA is the rule that describes what actually happens.
The seller delivers the goods alongside the vessel at the named port, on the quay or on a barge, cleared for export. Risk passes there. Used mainly for bulk commodities and heavy lifts that the ship loads itself.
The seller clears the goods for export and delivers them on board the vessel the buyer has nominated at the named port. Risk passes once the goods are on board. The buyer pays the ocean freight and everything after. Sensible for bulk, a poor fit for containers, and not the same thing as the FOB used in North American domestic trucking.
The seller pays the ocean freight to the destination port, but risk passes when the goods are on board at the port of loading. The buyer carries the risk of the voyage and should insure it.
CFR plus insurance. The seller must insure the voyage for the buyer's benefit, but only to the minimum Institute Cargo Clauses (C) cover, which is narrower than the all-risks cover most buyers assume they are getting. Buyers who need more should ask for it in the contract or insure the difference themselves.
Incoterms 2020 took effect on 1 January 2020 and is the current edition. The changes from 2010 were practical rather than sweeping, and most of them fix problems that shippers had been working around for years.
A contract that names Incoterms 2010 is still valid, because the rules apply by agreement rather than by law. That is why the edition year matters: FCA under 2010 and FCA under 2020 are not quite the same deal.
Delivered at Terminal was renamed Delivered at Place Unloaded, and the destination can now be any place, not only a terminal. The seller still unloads.
The buyer can be required to instruct its carrier to issue an on-board bill of lading to the seller after loading, which the seller often needs to get paid under a letter of credit.
The default cover under CIP rose to Institute Cargo Clauses (A). CIF stayed at the minimum Clauses (C) cover.
Under FCA, DAP, DPU and DDP the party responsible can move the goods in its own vehicles rather than hiring a carrier.
Security-related requirements and their costs are now assigned between seller and buyer within each rule.
For most Canadian importers buying from suppliers overseas, the best default is FCA at the supplier's premises or a named terminal near it. The supplier clears the goods for export, which it is set up to do. The importer controls the main freight through its own forwarder, chooses the routing, sees the real freight cost, and can insure the goods on its own policy.
EXW looks cheaper and usually is not. It leaves the buyer responsible for loading and for export clearance in a country where it has no presence, and many suppliers will quietly handle the export anyway, which blurs who is responsible if something goes wrong.
The C rules, CFR, CIF, CPT and CIP, suit buyers who want a single price to their port or city and are content to let the supplier choose the carrier. The trade-off is less visibility and a freight cost buried in the product price. The D rules suit buyers who want goods delivered to the door, but DDP in particular should be approached with care.
DDP into Canada makes the foreign seller the importer of record. It then needs Canadian customs accounts of its own as a non-resident importer, and it decides how the goods are classified and valued on an import the Canadian buyer will be asked about later. DAP with the buyer's own customs broker keeps the delivered convenience without handing over control of the declaration.
| If you want | Ask the supplier for | Why |
|---|---|---|
| Control of the freight and the lowest total cost | FCA, supplier's premises or origin terminal | The supplier clears export; you run the main leg and the insurance |
| One price to your port, supplier books the ship | CIF or CFR for bulk, CIP or CPT for containers | Simple to compare, but risk passes at origin |
| Delivery to your door, your broker clears it | DAP, your address | Supplier carries the risk to your door; you keep the customs entry |
| The supplier to handle everything including duty | DDP, only if the supplier is set up as a non-resident importer | Least work for you, least control over your own import |
General guidance, not legal advice. The right rule depends on the goods, the payment terms and how much of the chain each party can actually manage. Always write the rule, the named place and Incoterms 2020 into the contract.
The Incoterm on the invoice does not set the value for duty, but it tells customs what the invoice price includes, and that decides what has to be added or taken away.
In Canada, transportation costs are treated according to the place of direct shipment to Canada. Costs to get the goods to that place form part of the value for duty. Costs to carry them from that place to Canada do not, and where they are included in the invoice price they may be deducted if they are identified. Where that place is depends on how the goods actually move, so the same Incoterm can need different adjustments on different shipments. What matters is that the freight and insurance inside the invoice price are shown separately, so they can be treated correctly.
The United States works on a similar principle: international freight and insurance are excluded from the transaction value when they are identified separately from the price.
This is the practical reason to make the Incoterm, the named place and the freight charges clear on the commercial invoice. A customs broker can only declare the right value if the invoice shows what the price covers.
Almost every Incoterms dispute comes from one of a handful of habits, and every one of them is cheap to fix in the contract and expensive to fix after the goods have moved.
FCA or DAP on its own means nothing. The rule only works with a precise place attached: an address, a terminal or a port.
Write Incoterms 2020. Without it, the parties can argue about which version of the rule they agreed to.
The seller keeps the risk of a box sitting in a terminal it does not control. FCA fits containerised freight.
CIF only requires the minimum Clauses (C) cover. Check the policy, or insure the gap yourself.
Incoterms do not say when the buyer pays or when ownership passes. That belongs in the rest of the contract.
FOB shipping point on a North American freight invoice is not the sea-only Incoterm FOB, and treating them as the same leads to arguments about who carried the risk.
If the seller has no way to act as the importer of record, a DDP contract cannot be performed as written, and the goods stop at the border.
Air and ocean freight booked on the Incoterm you agreed, from the supplier's door to yours.
Read more →Where the Incoterm, the named place and the freight charges have to be shown for customs.
Read more →The transport document that FCA, FOB and the C rules all depend on.
Read more →Duty, GST and landed cost once you know what the invoice price includes.
Read more →FCL and LCL from Asia and Europe, the lanes where Incoterms matter most.
Read more →Where FCA and CPT replace the sea-only rules.
Read more →A licensed customs broker files the entry; we coordinate it on the same file as the freight.
Read more →Every document that travels with a load, in the order it is asked for.
Read more →Tell us the Incoterm and the named place, and we will quote the legs that are yours to pay for.
Read more →Incoterms are a set of eleven three-letter trade terms published by the International Chamber of Commerce. Written into a sales contract, each one settles who arranges and pays for transport, who handles export and import clearance, and the exact point where the risk of loss or damage passes from the seller to the buyer. The current edition is Incoterms 2020.
There are eleven in the 2020 edition. Seven can be used for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are only for sea and inland waterway transport: FAS, FOB, CFR and CIF.
Yes. Incoterms 2020 took effect on 1 January 2020 and is the edition in force. The ICC has revised the rules roughly every ten years, so a new edition is expected around 2030. Older editions such as Incoterms 2010 can still be used if a contract names them, which is why the edition year should always be written after the rule.
FCA means Free Carrier. The seller clears the goods for export and hands them to the carrier the buyer has chosen, at a named place. If that place is the seller's premises, delivery happens once the goods are loaded onto the buyer's truck. If it is somewhere else, such as the carrier's terminal, delivery happens when the goods arrive there on the seller's vehicle, ready for unloading. Risk passes to the buyer at that moment.
Under both, the seller delivers to the buyer's named place and carries the risk until the goods arrive there. The difference is import clearance. Under DAP the buyer clears the goods and pays the duties and taxes. Under DDP the seller does both, which means the seller acts as the importer of record in the destination country.
FOB is a sea-only rule where risk passes once the goods are on board the vessel at the port of loading. FCA works for any mode and passes risk when the goods are handed to the buyer's carrier, which for containers is usually at the terminal or the seller's dock, days before loading. For containerised freight FCA matches how the goods actually move, which is why the ICC recommends it over FOB for containers.
EXW means Ex Works. The seller simply makes the goods available at its own premises. The buyer loads them, clears them for export, carries them and imports them, and bears every cost and risk from the moment they are available for collection. It is the least the seller can do and the most the buyer can take on.
For most importers buying from overseas suppliers, FCA at the supplier's premises or a named origin terminal is the most practical choice. The supplier clears export, which it is best placed to do, and the importer controls the main freight and the insurance through its own forwarder. EXW looks cheaper but leaves the buyer responsible for export formalities in a country where it has no presence.
No. Incoterms decide delivery, costs, risk and who handles customs formalities. They do not decide when ownership or title passes, how or when the buyer pays, or what happens if the contract is broken. Those have to be dealt with elsewhere in the sales contract.
Only two do. Under CIF the seller must insure the goods to at least the minimum level of cover, Institute Cargo Clauses (C). Under CIP the seller must provide the broader Clauses (A) cover. In both cases the minimum sum insured is the contract value plus 10 percent. Under the other nine rules insurance is not required by the Incoterm, although whichever party carries the risk will usually want it.
Often, but not in the Incoterms sense. In domestic North American trucking, FOB shipping point and FOB destination are terms from commercial law that mostly signal who pays the freight and where risk and title pass. They are not the Incoterms FOB rule, which is for sea freight only. If a contract means the Incoterm, it should say FOB, the named port, and Incoterms 2020.
DPU, Delivered at Place Unloaded. It works like the old DAT but the destination can be any named place, not only a terminal. Under DPU the seller must unload the goods at that place, which makes it the only Incoterm where the seller is responsible for unloading at destination.
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