Incoterms are international rules published by the International Chamber of Commerce (ICC). They define where along the route the seller delivers the goods, who pays which costs and when the risk passes to the buyer. A term in a quote, e.g. "FOB Shanghai", changes the real cost significantly.
The most common terms
EXW (Ex Works)
The seller simply makes the goods available at their premises. Everything else, including loading and export clearance, is the buyer's job. It looks like the cheapest price, but often is not.
FCA (Free Carrier)
The seller clears the goods for export and hands them to the carrier the buyer nominated. A good choice for any transport mode, including containers.
FOB (Free On Board)
The seller loads the goods on the vessel at the port of departure. From there, freight, insurance and risk are the buyer's. It applies to sea transport only and is the most common term for imports from Asia. It gives the importer control over freight.
CIF (Cost, Insurance and Freight)
The seller pays freight and basic insurance to the destination port, but the risk passes to the buyer at loading. The buyer does not control the freight and often faces high charges at the arrival port.
DAP (Delivered At Place)
The seller delivers to the destination, without import clearance. The buyer pays duties and VAT.
DDP (Delivered Duty Paid)
The seller pays everything, including duties and VAT in the destination country. For imports into the EU from a foreign supplier it often causes practical problems, because the seller has to act as the importer. Use with care.
What we recommend
- For imports: usually FOB or FCA, so you control transport and its cost.
- For exports: FCA or FOB for new buyers; CIF or DAP when you want to give the customer a delivered price.
Always state the term with the place and version, e.g. "FOB Ningbo, Incoterms® 2020".
