{"source":"https://traddal.com/resources/incoterms-explained","title":"Incoterms explained","description":"What each of the 11 rules puts on the buyer and seller, how to pick one, and a worked example of the same order priced under four rules.","robots":"index, follow","updated":"2026-11-06T10:34:48.198Z","breadcrumbs":[{"name":"Resources","url":"https://traddal.com/resources"},{"name":"Incoterms","url":"https://traddal.com/resources/incoterms-explained"}],"facts":[],"lede":"What each of the 11 rules puts on the buyer and seller, how to pick one, and a worked example of the same order priced under four rules.","sections":[{"id":"overview","title":"","body":[{"type":"prose","text":"Each Incoterms rule answers three questions: where the seller's job ends, who pays for which part of the journey, and when risk passes to the buyer. That's all. The rules say nothing about title, price, or what happens if someone doesn't pay, so your contract still has to do that work. They're published by the International Chamber of Commerce, and the current edition is Incoterms 2020. What follows is our own summary, so read the ICC's text for the actual wording."}]},{"id":"the-11-rules-in-order-of-how-far-the-seller-goes","title":"The 11 rules, in order of how far the seller goes","body":[{"type":"prose","text":"Seven work for any transport. Four are only for sea and inland waterway."},{"type":"table","caption":"The 11 rules, in order of how far the seller goes","columns":[{"header":"Rule"},{"header":"Any mode?"},{"header":"Seller gets the goods to"},{"header":"Risk passes"},{"header":"Main carriage paid by"},{"header":"Import clearance"}],"rows":[[{"text":"**EXW** Ex Works","inline":true},{"text":"Yes","inline":true},{"text":"Its own premises","inline":true},{"text":"At the seller's premises","inline":true},{"text":"Buyer","inline":true},{"text":"Buyer","inline":true}],[{"text":"**FCA** Free Carrier","inline":true},{"text":"Yes","inline":true},{"text":"A carrier the buyer has named","inline":true},{"text":"When handed to the carrier","inline":true},{"text":"Buyer","inline":true},{"text":"Buyer","inline":true}],[{"text":"**FAS** Free Alongside Ship","inline":true},{"text":"Sea only","inline":true},{"text":"Alongside the ship","inline":true},{"text":"At the ship's side","inline":true},{"text":"Buyer","inline":true},{"text":"Buyer","inline":true}],[{"text":"**FOB** Free on Board","inline":true},{"text":"Sea only","inline":true},{"text":"On board the ship","inline":true},{"text":"Once on board","inline":true},{"text":"Buyer","inline":true},{"text":"Buyer","inline":true}],[{"text":"**CFR** Cost and Freight","inline":true},{"text":"Sea only","inline":true},{"text":"On board, paying to the port","inline":true},{"text":"Once on board","inline":true},{"text":"Seller","inline":true},{"text":"Buyer","inline":true}],[{"text":"**CIF** Cost, Insurance and Freight","inline":true},{"text":"Sea only","inline":true},{"text":"On board, paying freight and insurance","inline":true},{"text":"Once on board","inline":true},{"text":"Seller","inline":true},{"text":"Buyer","inline":true}],[{"text":"**CPT** Carriage Paid To","inline":true},{"text":"Yes","inline":true},{"text":"First carrier, paying to the destination","inline":true},{"text":"When handed to the first carrier","inline":true},{"text":"Seller","inline":true},{"text":"Buyer","inline":true}],[{"text":"**CIP** Carriage and Insurance Paid","inline":true},{"text":"Yes","inline":true},{"text":"First carrier, paying freight and insurance","inline":true},{"text":"When handed to the first carrier","inline":true},{"text":"Seller","inline":true},{"text":"Buyer","inline":true}],[{"text":"**DAP** Delivered at Place","inline":true},{"text":"Yes","inline":true},{"text":"Named place, ready to unload","inline":true},{"text":"On arrival, ready to unload","inline":true},{"text":"Seller","inline":true},{"text":"Buyer","inline":true}],[{"text":"**DPU** Delivered at Place Unloaded","inline":true},{"text":"Yes","inline":true},{"text":"Named place, unloaded","inline":true},{"text":"Once unloaded","inline":true},{"text":"Seller","inline":true},{"text":"Buyer","inline":true}],[{"text":"**DDP** Delivered Duty Paid","inline":true},{"text":"Yes","inline":true},{"text":"Named place, cleared, ready to unload","inline":true},{"text":"On arrival, ready to unload","inline":true},{"text":"Seller","inline":true},{"text":"Seller","inline":true}]],"records":[{"Rule":"EXW Ex Works","Any mode?":"Yes","Seller gets the goods to":"Its own premises","Risk passes":"At the seller's premises","Main carriage paid by":"Buyer","Import clearance":"Buyer"},{"Rule":"FCA Free Carrier","Any mode?":"Yes","Seller gets the goods to":"A carrier the buyer has named","Risk passes":"When handed to the carrier","Main carriage paid by":"Buyer","Import clearance":"Buyer"},{"Rule":"FAS Free Alongside Ship","Any mode?":"Sea only","Seller gets the goods to":"Alongside the ship","Risk passes":"At the ship's side","Main carriage paid by":"Buyer","Import clearance":"Buyer"},{"Rule":"FOB Free on Board","Any mode?":"Sea only","Seller gets the goods to":"On board the ship","Risk passes":"Once on board","Main carriage paid by":"Buyer","Import clearance":"Buyer"},{"Rule":"CFR Cost and Freight","Any mode?":"Sea only","Seller gets the goods to":"On board, paying to the port","Risk passes":"Once on board","Main carriage paid by":"Seller","Import clearance":"Buyer"},{"Rule":"CIF Cost, Insurance and Freight","Any mode?":"Sea only","Seller gets the goods to":"On board, paying freight and insurance","Risk passes":"Once on board","Main carriage paid by":"Seller","Import clearance":"Buyer"},{"Rule":"CPT Carriage Paid To","Any mode?":"Yes","Seller gets the goods to":"First carrier, paying to the destination","Risk passes":"When handed to the first carrier","Main carriage paid by":"Seller","Import clearance":"Buyer"},{"Rule":"CIP Carriage and Insurance Paid","Any mode?":"Yes","Seller gets the goods to":"First carrier, paying freight and insurance","Risk passes":"When handed to the first carrier","Main carriage paid by":"Seller","Import clearance":"Buyer"},{"Rule":"DAP Delivered at Place","Any mode?":"Yes","Seller gets the goods to":"Named place, ready to unload","Risk passes":"On arrival, ready to unload","Main carriage paid by":"Seller","Import clearance":"Buyer"},{"Rule":"DPU Delivered at Place Unloaded","Any mode?":"Yes","Seller gets the goods to":"Named place, unloaded","Risk passes":"Once unloaded","Main carriage paid by":"Seller","Import clearance":"Buyer"},{"Rule":"DDP Delivered Duty Paid","Any mode?":"Yes","Seller gets the goods to":"Named place, cleared, ready to unload","Risk passes":"On arrival, ready to unload","Main carriage paid by":"Seller","Import clearance":"Seller"}]}]},{"id":"the-point-people-trip-over-c-rules-aren-t-delivered-rules","title":"The point people trip over: C rules aren't delivered rules","body":[{"type":"prose","text":"Under a C rule, the seller pays for the journey, but the risk has already passed when the goods leave. So if a ship sinks on a CIF sale after loading, the buyer bears the loss, and claims on the insurance the seller bought for it. In a [D rule](https://academy.iccwbo.org/incoterms/article/incoterms-2020-c-or-d-rules/), the goods travel at the seller's risk until they arrive. Mix these up, and you'll have an argument at exactly the worst moment.\n\nThree other common points to raise before you sign:\n\n- **Containers and FOB.** The ship's rail doesn't suit container freight. The seller loses control at the terminal, well before the ship loads. For containers, [ICC's checklist](https://library.iccwbo.org/content/clp/Others/incoterms_2020_checklist_2024-update.pdf) points to FCA, and CPT or CIP are the any-mode equivalents of CFR and CIF.\n- **EXW for exports.** The buyer is responsible for export clearance, even though it may not be able to file in the seller's country. ICC's checklist advises exporters to consider EXW only for domestic sales, if at all. FCA is often the better choice.\n- **DDP.** The seller has to be [able to act as importer](/resources/ddp-and-dap). Check this first. ICC notes that some countries don't allow it at all."}]},{"id":"one-order-priced-four-ways","title":"One order, priced four ways","body":[{"type":"prose","text":"This is our own illustration, with invented figures and no margin added. A UK maker sells 30 oak tables to a buyer in Toronto. The factory price is GBP 12,000."},{"type":"table","caption":"One order, priced four ways","columns":[{"header":"Cost"},{"header":"Amount","align":"right"},{"header":"EXW","align":"right"},{"header":"FCA","align":"right"},{"header":"CIP","align":"right"},{"header":"DDP","align":"right"}],"rows":[[{"text":"Goods","inline":true},{"text":"12,000","inline":true},{"text":"12,000","inline":true},{"text":"12,000","inline":true},{"text":"12,000","inline":true},{"text":"12,000","inline":true}],[{"text":"Local haulage, export clearance","inline":true},{"text":"450","inline":true},{"text":"","inline":true},{"text":"450","inline":true},{"text":"450","inline":true},{"text":"450","inline":true}],[{"text":"Ocean freight and destination haulage","inline":true},{"text":"2,600","inline":true},{"text":"","inline":true},{"text":"","inline":true},{"text":"2,600","inline":true},{"text":"2,600","inline":true}],[{"text":"Insurance","inline":true},{"text":"180","inline":true},{"text":"","inline":true},{"text":"","inline":true},{"text":"180","inline":true},{"text":"180","inline":true}],[{"text":"Duty and tax in Canada (assumed)","inline":true},{"text":"1,900","inline":true},{"text":"","inline":true},{"text":"","inline":true},{"text":"","inline":true},{"text":"1,900","inline":true}],[{"text":"**Seller's price**","inline":true},{"text":"","inline":true},{"text":"**12,000**","inline":true},{"text":"**12,450**","inline":true},{"text":"**15,230**","inline":true},{"text":"**17,130**","inline":true}]],"records":[{"Cost":"Goods","Amount":"12,000","EXW":"12,000","FCA":"12,000","CIP":"12,000","DDP":"12,000"},{"Cost":"Local haulage, export clearance","Amount":"450","EXW":"","FCA":"450","CIP":"450","DDP":"450"},{"Cost":"Ocean freight and destination haulage","Amount":"2,600","EXW":"","FCA":"","CIP":"2,600","DDP":"2,600"},{"Cost":"Insurance","Amount":"180","EXW":"","FCA":"","CIP":"180","DDP":"180"},{"Cost":"Duty and tax in Canada (assumed)","Amount":"1,900","EXW":"","FCA":"","CIP":"","DDP":"1,900"},{"Cost":"Seller's price","Amount":"","EXW":"12,000","FCA":"12,450","CIP":"15,230","DDP":"17,130"}]},{"type":"prose","text":"Each column is the same goods. The difference is what the seller has to do and carry. On DDP, a change in the rate is the seller's loss: [ICC notes it's the only rule where the seller pays the tariff](https://iccwbo.org/wp-content/uploads/sites/3/2025/04/2025.04_Using_Incoterms_to-Manage_Tariff_Risks.pdf). That's a live risk with [US tariffs changing](/resources/us-tariff-changes) on short notice. Whatever you pick, the rule also affects the customs value: an EXW price doesn't include freight that a CIF country will add back. See [landed cost](/resources/landed-cost)."}]},{"id":"what-changed-in-the-2020-edition","title":"What changed in the 2020 edition","body":[{"type":"prose","text":"[ICC's summary](https://academy.iccwbo.org/incoterms/article/incoterms-2020-vs-2010-whats-changed/) lists these:\n\n- **DPU replaced DAT**, and it can be used for any place, not just a terminal.\n- **FCA can now cover an on-board bill of lading**, if the parties agree, which helps with letters of credit.\n- **CIP needs a higher level of insurance** than before, while CIF is unchanged. Ask whether either level suits your goods.\n- **Security requirements** now appear in the obligations for each rule.\n- **Own transport** is allowed: FCA buyers and D-rule sellers can move the goods themselves instead of using a third-party carrier."}]},{"id":"how-to-pick","title":"How to pick","body":[{"type":"prose","text":"1. **How's it moving?** Containers and air freight rule out FAS, FOB, CFR and CIF in practice.\n2. **Who has the better freight rate and the better local knowledge?** Whoever does should run that stage.\n3. **Who can clear customs where?** Generally, each party should handle its own country.\n4. **How is it being paid for?** A letter of credit might need a particular document.\n5. **Who's taking the risk on tariffs, and how long's the quote valid?**"}]},{"id":"how-to-write-one","title":"How to write one","body":[{"type":"prose","text":"Name the rule, a precise place, and the edition, for example `FCA Felixstowe Container Terminal, Incoterms 2020`. A rule without a place is half a sentence. The place matters more for a D rule, because a city name doesn't tell the carrier which door. Put the same wording on your [commercial invoice](/resources/commercial-invoices) and [proforma](/tools/proforma-invoice-generator).\n\nA contract is governed by the edition it refers to, so an older edition isn't necessarily invalid. It's just better to be clear. ICC says it reviews the rules every 10 years, and its [2026 workplan](https://iccwbo.org/wp-content/uploads/sites/3/2026/01/2026_ICC_Global-Policy-Commissions_Workplan.pdf) says it's beginning the work for an Incoterms 2030."}]}],"faq":[{"question":"Are carrier services like \"DDP\" the same as the Incoterms rule?","answer":"Not exactly. A courier's \"duties paid\" option is about who the carrier bills, and it's a service term. It doesn't set the risk or the delivery terms between you and your buyer."},{"question":"Do I have to use them?","answer":"No. They're contract terms, and they apply when you write them in. They aren't law, although customs forms in many countries ask which one applies."}],"sources":["[ICC: Incoterms rules history](https://iccwbo.org/business-solutions/incoterms-rules/incoterms-rules-history/), checked 5 November 2026","[ICC Academy: Incoterms 2020 vs 2010, what's changed](https://academy.iccwbo.org/incoterms/article/incoterms-2020-vs-2010-whats-changed/), checked 5 November 2026","[ICC Academy: DAP and DDP Incoterms 2020 explained](https://academy.iccwbo.org/incoterms/article/incoterms-2020-dap-or-ddp/), checked 5 November 2026","[ICC Academy: Incoterms 2020 C rules vs D rules](https://academy.iccwbo.org/incoterms/article/incoterms-2020-c-or-d-rules/), checked 5 November 2026","[ICC: Using the Incoterms 2020 rules to manage tariff risk, April 2025](https://iccwbo.org/wp-content/uploads/sites/3/2025/04/2025.04_Using_Incoterms_to-Manage_Tariff_Risks.pdf), checked 5 November 2026","[ICC: Incoterms 2020 checklist and flowcharts](https://library.iccwbo.org/content/clp/Others/incoterms_2020_checklist_2024-update.pdf), checked 5 November 2026","[ICC: Global Policy Commissions Workplan 2026](https://iccwbo.org/wp-content/uploads/sites/3/2026/01/2026_ICC_Global-Policy-Commissions_Workplan.pdf), checked 5 November 2026","[UNECE: Recommendation 5, Incoterms abbreviations](https://unece.org/sites/default/files/2023-10/Rec5-ECE-TRADE-458E.pdf), checked 5 November 2026"],"guide":{"slug":"incoterms-explained","kind":"topic","section":"Reference"},"markdown":"https://traddal.com/resources/incoterms-explained.md"}