Definition (canonical)
Incoterms are the 11 standardized trade terms published by the International Chamber of Commerce that define, in three letters, exactly where the seller's responsibility ends and the buyer's begins — who pays for transport, who bears the risk of loss, and who clears customs. They do NOT decide who owns the goods or when payment is due; they allocate cost, risk and duties, nothing more.
The 11 rules, grouped
Two families make them easy to remember. Any transport mode: EXW (buyer does everything from the seller's door), FCA (seller hands goods to a carrier), CPT and CIP (seller pays carriage, and for CIP insurance, to a named place), DAP and DPU (seller delivers to destination, unloaded for DPU), DDP (seller does everything including import duty). Sea and inland waterway only: FAS, FOB, CFR, CIF — built around the ship's rail and used for bulk and container cargo. The ladder runs from EXW (maximum buyer effort) to DDP (maximum seller effort); every step moves cost and risk further onto the seller.
Where risk and cost actually transfer
The subtle, expensive point: cost and risk do not always transfer at the same place. Under CIF and CFR the seller pays freight to the destination port, but risk passes to the buyer once goods are loaded on the vessel — so goods damaged in transit are the buyer's problem even though the seller booked the shipping. Getting this wrong is a classic dispute in B2B trade. Incoterms also interact with cash: the term you choose shapes how long capital sits in transit, a direct hit to working capital and short-term liquidity.
Common mistakes
Writing "FOB" for a container that never touches a ship's rail (use FCA); assuming DDP is "easy" while the seller quietly takes on foreign import VAT and customs exposure; forgetting to name the precise place ("FCA Gdańsk terminal", not just "FCA"); and confusing Incoterms with insurance — only CIF and CIP oblige the seller to insure, and only at minimum cover. Always cite the version: "Incoterms 2020" — older editions still circulate and differ.
FAQ
Do Incoterms decide who owns the goods? No — they allocate cost, risk and obligations. Title and payment terms are set separately in the sales contract.
What is the safest term for a new exporter? Often FCA or CPT — the seller keeps control of export clearance without taking on foreign import duties the way DDP does.
Are Incoterms law? No — they are contractual standards. They apply only when the contract references them, but courts worldwide recognize them.
FOB or FCA for containers? FCA. FOB is designed for goods crossing a ship's rail; containers handed to a terminal fit FCA better.
Related: B2B · Working capital · Liquidity Reviewed: 2026-08-02 · Sources: ICC Incoterms 2020