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What are Incoterms? Meaning, types, usage, and benefits
Incoterms are trade terms published by the ICC that define the responsibilities of sellers and buyers. Learn more about shipping Incoterms in this blog.
Navigating international trade without clear guidelines can feel like sailing without a compass—risky and unpredictable. That’s where Incoterms, the globally recognized trade rules, come in. or Indian exporters, understanding these terms is essential to avoid disputes, manage costs, and ensure compliance with each step of the shipping process. They influence how contracts are structured, how risks are shared, and how the customs procedure is carried out. This blog introduces Incoterms, explains their role in international trade, and highlights how these terms can impact costs, contracts, and customs procedures.
What are Incoterms?
Incoterms (short for International Commercial Terms) are a series of globally recognized trade rules established by the International Chamber of Commerce (ICC). They define the responsibilities of sellers and buyers in international trade transactions. Incoterms were first introduced in 1936 and are updated periodically to reflect changes in global trade practices. In 2010, Incoterms were categorized into two groups based on modes of transport:
a) those applicable to any mode of transport, and
b) those specific to sea, land or inland waterway transport.2
a) those applicable to any mode of transport, and
b) those specific to sea, land or inland waterway transport.2
What are Incoterms 2020?
Incoterms 2020 is the latest update from the International Chamber of Commerce, effective since January 1, 2020. This revision builds on earlier versions by aligning with the changing dynamics of global trade and addressing modern shipping and logistics practices. The revision is designed to reflect contemporary business practices, shipping technologies, and logistics needs, while maintaining universal clarity for exporters, importers, freight forwarders, and insurers.3 These updates are particularly significant for Indian businesses given the surge in ecommerce, deeper integration into global supply chains, and ongoing shifts in trade regulations.
Key changes made in new Incoterms 2020
The move from Incoterms 2010 to Incoterms 2020 brought several updates. These changes aim to increase transparency and flexibility for all parties. Major differences include:
● DAT (Delivered at Terminal) has been renamed DPU (Delivered at Place Unloaded), clarifying that delivery can occur anywhere, not just at a terminal.
● FCA (Free Carrier) now allows sellers and buyers to agree that the buyer’s bank will issue a Bill of Lading with an on-board notation.
● Different levels of insurance coverage are required for CIP (Carriage and Insurance Paid To) and CIF (Cost, Insurance, and Freight) terms.
● Security-related requirements are more clearly defined for shipping Incoterms.4
Uses of Incoterms in international trade
Incoterms serve as a set of universal rules and guidelines for international trade and shipping. They clarify the responsibilities of both sellers and buyers regarding freight costs, insurance, export and import duties, risk management, etc.5
The following are some ways in which Incoterms are used in modern international trade:
The following are some ways in which Incoterms are used in modern international trade:
● Defines responsibility: Incoterms define who shall be responsible for the transport of goods, its insurance, and customs clearance.
● Outlines risk transfer: Incoterms specify the point at which the risk of loss or damage to goods transfers from seller to buyer.
● Ensures consistency: Incoterms help prevent disputes and misunderstandings in global trade.
Advantages of Incoterms
Some advantages of Incoterms include:
● Clear division of responsibilities: Incoterms specify who handles transportation, insurance, duties, and documentation, reducing confusion.
● Risk mitigation: Exporters and importers can better manage risks by understanding when liability transfers from seller to buyer.
● Global acceptance: Incoterms are recognized internationally, offering consistency across cross-border contracts.
● Efficient dispute resolution: Well-defined terms minimize the potential for misunderstandings and legal conflicts.
● Improved logistics planning: Incoterms can help businesses streamline their operations by providing a clear logistics framework.6
Disadvantages of Incoterms
● Lack of legal enforcement: Incoterms are not legally binding on their own. If not incorporated into a formal sales contract, they do not have any legal standing.
● Inapplicability to all trade areas: Incoterms do not cover every aspect of international trade, such as transfer of ownership, product liability, or breach of contract.
● Complexity for beginners: The technical language and variety of terms can be confusing for new or small exporters, leading to misapplication.
● Risk of miscommunication: When not used correctly, Incoterms can create confusion regarding the division of responsibilities, especially across borders with different legal interpretations.7
Types of Incoterms
According to the latest guidelines, the 11 Incoterms under Incoterms 2020 are divided into two primary categories based on the mode of transport: those applicable to all types of transport and those limited to sea and inland waterways. Each Incoterm defines specific responsibilities related to cost, risk, and logistics. The 11 Incoterms are:
Group
Term
Description
E
EXW
Ex Works: Buyer takes most responsibility; seller's minimum duty
F
FCA
Free Carrier: Seller delivers to carrier appointed by buyer
FAS
Free Alongside Ship: Seller delivers goods alongside ship
FOB
Free on Board: Seller loads goods on vessel chosen by buyer
C
CFR
Cost and Freight: Seller pays freight, risk transfers at port
CIF
Cost, Insurance, and Freight: As above, but seller insures cargo
CPT
Carriage Paid To: Seller pays carriage, risk transfers to buyer
CIP
Carriage and Insurance Paid To: Seller insures up to named place
D
DAP
Delivered at Place: Seller delivers at destination, not unloaded
DPU
Delivered at Place Unloaded: Seller delivers and unloads goods
DDP
Delivered Duty Paid: Seller responsible for duties/taxes8
Incoterms used for any transport
The following Incoterms apply to all modes of transport (road, rail, air, and sea):
● EXW (Ex Works)
● FCA (Free Carrier)
● CPT (Carriage Paid To)
● CIP (Carriage and Insurance Paid To)
● DAP (Delivered at Place)
● DPU (Delivered at Place Unloaded)
● DDP (Delivered Duty Paid)
These are widely used in Indian air exports, multi-modal shipments, and ecommerce parcels.9
● FCA (Free Carrier)
● CPT (Carriage Paid To)
● CIP (Carriage and Insurance Paid To)
● DAP (Delivered at Place)
● DPU (Delivered at Place Unloaded)
● DDP (Delivered Duty Paid)
These are widely used in Indian air exports, multi-modal shipments, and ecommerce parcels.9
Incoterms used only for sea and inland waterway transport
These Incoterms apply exclusively to sea or inland waterway shipments:
● FAS (Free Alongside Ship)
● FOB (Free on Board)
● CFR (Cost and Freight)
● CIF (Cost, Insurance, and Freight)
These are commonly used by Indian exporters dealing with bulk commodities and port-to-port shipments.10
● FOB (Free on Board)
● CFR (Cost and Freight)
● CIF (Cost, Insurance, and Freight)
These are commonly used by Indian exporters dealing with bulk commodities and port-to-port shipments.10
What’s the difference between Incoterms 2020 and 2010?
Incoterms 2020 made several refinements:
Aspect
Incoterms 2010
Incoterms 2020
Rename of DAT
DAT (Delivered at Terminal)
DPU (Delivered at Place Unloaded)
Updates to insurance requirements
Same insurance for CIF and CIP
Higher coverage required for CIP than CIF
FCA Bill of Lading
Not addressed
Allows on-board Bill of Lading under FCA
Security obligations
Less emphasis
Expanded obligations for transport security
What do Incoterms not cover?
Despite providing substantial clarity, Incoterms do not:
● Define property rights or transfer of title.
● Cover payment terms, contract breaches, or issues unrelated to logistics.
● Address product liability, force majeure, or intellectual property.
● Replace local regulatory compliance in India.
Exporters should supplement contracts with clear terms on these aspects.12
How Incoterms can impact shipping cost
Incoterms directly impact overall shipping costs:
● Assigning who pays for freight, insurance, and customs duties affects landed costs.
● Terms like EXW allow buyers to choose carriers, potentially lowering costs.
● Under CIF or DDP, sellers incur higher upfront costs, which may result in higher product pricing for buyers.
● Appropriate selection allows Indian traders to manage costs, transparency, and risk.13
How to select the right Incoterm for your business
To choose the right incoterms in logistics, follow these steps:
● Assess experience level: New exporters may prefer EXW or FOB for reduced complexity.
● Identify the prevalent mode of transport: Use FCA/CIP for air/rail, FAS/FOB/CIF for sea shipments.
● Factor in buyer/seller preference: Indian exporters favor FOB, while importers opt for CIF.
● Consider customs and legal requirements: Abide by Indian and destination country compliance.
● Plan for costs and risk transfer: Choose a term that aligns with your risk appetite and cost structure.14
Tips for using incoterms
Here are a few tips to ensure that Incoterms are applied correctly during international trade:
● Choose the right Incoterm: Select the most appropriate Incoterm considering the mode of transport and the level of risk you want to take on for your transaction.
● Understand responsibilities: Recognize the obligations under each Incoterm, including those about customs charges, insurance, and shipping expenses.
● Include Incoterms in contracts: Always include your selected Incoterm in writing in your sales contract to prevent any misunderstandings down the road.
● Stay updated on revisions: Be aware of the revisions to stay up to date with the most recent advancements.15
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Frequently Asked Questions
1. Can I still use Incoterms 2010 after January 1, 2020?
Yes, all contracts using Intercoms are valid if they are agreed by the parties involved and identified in related export documents.
2. Why are Incoterms used?
Incoterms prevent confusion in foreign trade contracts by clarifying the obligations of both customers or importers and sellers or exporters.
3. Who publishes Incoterm rules?
Incoterms are published by the International Chamber of Commerce. It was first established in 1936, while the latest version was published in 2020.
4. What is the purpose of Incoterms?
Incoterms provide information about responsibilities of parties involved in international trade like paying and managing shipment, insurance, documentation, customs clearance and other logistics.
5. How do Incoterms help in international trade?
Incoterms prevent confusion in foreign trade contracts and clarify the obligations of buyers and sellers.
6. What are the Incoterms for air freight?
For air freight, the most commonly used Incoterms are EXW (Ex Works), FCA (Free Carrier), CPT (Carriage Paid To), and CIP (Carriage and Insurance Paid To). These terms are versatile and apply to all modes of transport, including air. They define the responsibilities for transportation, insurance, and risk transfer between the buyer and seller.
7. What are the most used Incoterms?
FOB (Free on Board), CIF (Cost, Insurance and Freight), and EXW (Ex Works) are among the most commonly used Incoterms in India.
8. What is the latest Incoterm introduced recently?
The latest addition in Incoterms 2020 was the renaming of DAT to DPU, which better reflects delivery responsibilities.
Published on July 19, 2022.
Updated on September 17, 2025.
Sources:
1. https://www.dhl.com/discover/en-in/logistics-advice/logistics-insights/understanding-what-are-incoterms
2. https://iccwbo.org/news-publications/icc-rules-guidelines/incoterms-rules-2010/
3. https://www.iccindiaonline.org/icc-two/Incoterms2020.html
4. https://www.cosmosourcing.com/blog/incoterms-2020-vs-2010-changes-between-the-2020-incoterms-and-the-2010-incoterms
5. https://www.sendcloud.com/incoterms/
6. https://usacustomsclearance.com/process/advantages-of-incoterms/
7. https://efinancemanagement.com/international-financial-management/disadvantages-of-incoterms
8. https://vinciworks.com/blog/what-are-the-different-types-of-incoterms/
10. https://www.inecta.com/blog/incoterms-2020-explained-complete-guide
11. https://www.cosmosourcing.com/blog/incoterms-2020-vs-2010-changes-between-the-2020-incoterms-and-the-2010-incoterms
12. https://www.investopedia.com/terms/i/incoterms.asp#toc-what-do-incoterms-not-cover
13. https://www.supplychainshark.com/insights/pvwb27aq4m0fr9x0hul2sy9rmbicfz
14. https://www.tradefinanceglobal.com/incoterms/choosing-the-right-incoterm/
15. https://legamart.com/choosing-the-right-incoterms/
Updated on September 17, 2025.
Sources:
1. https://www.dhl.com/discover/en-in/logistics-advice/logistics-insights/understanding-what-are-incoterms
2. https://iccwbo.org/news-publications/icc-rules-guidelines/incoterms-rules-2010/
3. https://www.iccindiaonline.org/icc-two/Incoterms2020.html
4. https://www.cosmosourcing.com/blog/incoterms-2020-vs-2010-changes-between-the-2020-incoterms-and-the-2010-incoterms
5. https://www.sendcloud.com/incoterms/
6. https://usacustomsclearance.com/process/advantages-of-incoterms/
7. https://efinancemanagement.com/international-financial-management/disadvantages-of-incoterms
8. https://vinciworks.com/blog/what-are-the-different-types-of-incoterms/
10. https://www.inecta.com/blog/incoterms-2020-explained-complete-guide
11. https://www.cosmosourcing.com/blog/incoterms-2020-vs-2010-changes-between-the-2020-incoterms-and-the-2010-incoterms
12. https://www.investopedia.com/terms/i/incoterms.asp#toc-what-do-incoterms-not-cover
13. https://www.supplychainshark.com/insights/pvwb27aq4m0fr9x0hul2sy9rmbicfz
14. https://www.tradefinanceglobal.com/incoterms/choosing-the-right-incoterm/
15. https://legamart.com/choosing-the-right-incoterms/
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