Short for "International Commercial Terms", the Incoterms® rules are a set of 11 globally recognized standard trade terms created by the International Chamber of Commerce (ICC) to facilitate domestic and international B2B sales of goods.
Seven of the rules – EXW, FCA, CPT, CIP, DAP, DPU, and DDP – may be used with any kind of transport, or a combination of different modes of transport. The remaining 4 rules – FAS, FOB, CFR, and CIF – may be used only for sea or inland waterway transport.
The Incoterms® rules define certain key responsibilities for buyers and sellers for the delivery of goods under B2B sale contracts, including passage of risk from seller to buyer, export and import clearances, responsibility for arranging transport, and allocation of costs. Two of the Incoterms® rules – CIP and CIF – also address insurance.
Note that while the Incoterms® rules specify when risk for the goods passes from seller to buyer, they do not indicate when legal ownership of/title to the goods moves to the buyer.
When an Incoterms® rule is included in a contract of sale, it creates legal obligations for the buyer and seller, which can have costly implications. Therefore, it is important that traders read and understand the precise wording of the Incoterms® rules carefully and choose the rule to include in their sale contract thoughtfully. For additional information and resources on the Incoterms® 2020 rules, and to purchase the text of the rules, visit the ICC website.
The descriptions of the Incoterms® 2020 rules below give only a general overview, and readers are strongly encouraged to familiarize themselves with the full text of the rules themselves.
Consignee Consignor Cost and Freight (CFR) Cost, Insurance, and Freight (CIF) Carriage Paid To (CPT) Carriage and Insurance Paid To (CIP) Delivered at Place (DAP) Delivered at Place Unloaded (DPU) Delivered Duty Paid (DDP) Ex Works (EXW) Free Carrier (FCA) Free Alongside Ship (FAS) Free on Board (FOB)