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What are Incoterms (International Commercial Terms)?
Incoterms are 11 standardised trade terms by the ICC defining who pays costs, bears risk and handles customs in international trade.
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Navigating international trade without clear guidelines can feel like sailing without a compass. It's risky and unpredictable. That’s where Incoterms, the globally recognized trade rules, come in handy. Established by the International Chamber of Commerce (ICC), Incoterms, or International commercial terms, are standard trade rules for import and export. They influence how trade contracts are structured, risks are shared, and customs procedure is implemented.
For Indian exporters, understanding these terms is essential to avoid disputes, manage costs, and ensure compliance with each step of the shipping process. This blog introduces Incoterms, explains their role in international trade, and highlights how these terms can impact costs, contracts, and customs procedures.
For Indian exporters, understanding these terms is essential to avoid disputes, manage costs, and ensure compliance with each step of the shipping process. 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.
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.
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. 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.
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.
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.
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.
Types of Incoterms
Incoterms have been updated 9 times since 1936, with Incoterms 2020 being the latest edition. It preserved the 11 trade terms from the previous iteration (Incoterms 2010). The below table explains all the terms with their conditions.
Group
Term
Incoterms Meaning
Who pays for freight
Transport mode available
Who handles customs
When the risk transfers
E
EXW
Ex Works/Ex-Warehouse
Buyer
Any mode
Buyer handles export/import customs
Risk transfers when goods are made available at the seller's premises.1
F
FCA
Free Carrier
Buyer
Any mode
Seller clears export, buyer handles import
Risk transfers when goods are delivered to the carrier/ named place.2
F
FAS
Free Alongside Ship
Buyer
Sea/inland waterway only
Seller clears export, buyer handles import
Risk transfers when goods are placed alongside the vessel at port.3
F
FOB
Free On Board
Buyer
Sea/inland waterway only
Seller clears export, buyer handles import
Risk transfers when goods are loaded on board the vessel.4
C
CFR
Cost and Freight
Seller pays freight to destination port
Sea/inland waterway only
Seller clears export, buyer handles import
Risk transfers when goods are loaded on board the vessel.5
C
CIF
Cost, Insurance and Freight
Seller pays freight and insurance to destination port
Sea/inland waterway only
Seller clears export, buyer handles import
Risk transfers when goods are loaded on board the vessel.6
C
CPT
Carriage Paid To
Seller pays freight to named place
Any mode
Seller clears export, buyer handles import
Risk transfers when goods are handed to the first carrier.7
C
CIP
Carriage and Insurance Paid To
Seller pays freight and insurance to named place
Any mode
Seller clears export, buyer handles import
Risk transfers when goods are handed to the buyer’s representative.8
D
DAP
Delivered at Place
Seller pays carriage to destination
Any mode
Seller clears export, buyer handles import
Risk transfers when goods are ready for unloading at a named place.9
D
DPU
Delivered at Place Unloaded
Seller pays carriage to destination and unloads
Any mode
Seller clears export, buyer handles import
Risk transfers when goods are unloaded at a named place.10
D
DDP
Delivered Duty Paid
Seller pays most/all transport costs
Any mode
Seller clears export and import, including duties/taxes
Risk transfers when goods are placed at buyer’s disposal at agreed location and cleared for import.11
Incoterms for all modes of transport
The below Incoterm rules apply to all modes of transport from road, rail, air, sea, to multimodal shipments.
EXW - Ex Works
● Under the Incoterm EXW, the seller is responsible to make the goods available at the named pickup place. The buyer then arranges for paying and loading of goods.
● The buyer also has to cover all freight, insurance, and logistics costs for the goods to the destination.
● The export/import formalities, risks, and duties are all covered by the buyer once goods are ready to move from the seller's location.
● The buyer also has to cover all freight, insurance, and logistics costs for the goods to the destination.
● The export/import formalities, risks, and duties are all covered by the buyer once goods are ready to move from the seller's location.
FCA - Free Carrier
● Under FCA, the seller (exporter) delivers the goods to a carrier or a person nominated by the buyer (importer) at a pre-decided destination in the seller’s country. The buyer handles the risk and cost of transport from that point.
● The seller handles tasks like export clearance, delivering to the right place and loading the goods onto the buyer’s carrier.
● The buyer arranges and pays for main carriage, import clearance, etc once the goods arrive at the decided location.
● The seller handles tasks like export clearance, delivering to the right place and loading the goods onto the buyer’s carrier.
● The buyer arranges and pays for main carriage, import clearance, etc once the goods arrive at the decided location.
CPT - Carriage Paid To
● As per CPT, the seller arranges and pays for the main carriage for goods to a named destination. Once the goods are handed over to the first carrier in the seller’s country, the risk passes on to the buyer.
● The seller must clear all goods for export.
● The buyer then handles import clearance, duties, taxes, and any onward transport.
● The seller must clear all goods for export.
● The buyer then handles import clearance, duties, taxes, and any onward transport.
CIP - Carriage and Insurance Paid To
● Under CIP, the seller has to arrange and pay for transport to a decided destination in the buyer’s country. They also pay minimum‑standard insurance for the same.
● The risk passes to the buyer once the goods are transferred to the first carrier in the seller’s country.
● The seller has to clear the goods for export and contract and pay for carriage. They also obtain cargo insurance.
● The buyer handles import clearance, duties, taxes, and any onward transport after arrival at the destination.
● The risk passes to the buyer once the goods are transferred to the first carrier in the seller’s country.
● The seller has to clear the goods for export and contract and pay for carriage. They also obtain cargo insurance.
● The buyer handles import clearance, duties, taxes, and any onward transport after arrival at the destination.
DAP - Delivered at Place
● As per the Incoterm DAP, the seller delivers the goods at a named place of destination in the buyer’s country, and bears all risks and costs up to that point.
● The seller has to clear all goods for export. They also arrange and pay for transport to the agreed destination.
● The buyer clears the goods through import customs and pays duties and taxes from that point onwards. They are also responsible for unloading the goods.
● The seller has to clear all goods for export. They also arrange and pay for transport to the agreed destination.
● The buyer clears the goods through import customs and pays duties and taxes from that point onwards. They are also responsible for unloading the goods.
DPU - Delivered at Place
● Under this rule, the seller arranges and pays for transport to a named destination. They ensure that the goods are delivered and unloaded at the decided place.
● The buyer handles import clearance and pays all duties, taxes, and local charges. The risk and cost pass to the buyer once the goods are unloaded at the destination.
● The buyer handles import clearance and pays all duties, taxes, and local charges. The risk and cost pass to the buyer once the goods are unloaded at the destination.
DDP - Delivered Duty Paid
● The Incoterm DDP asks sellers to deliver the goods to a named place in the buyer’s country.
● The seller has to pay for export and import clearance, duties, taxes, VAT, and other charges. They also arrange and pay for international and local transport. Additionally, the seller bears all risks until the goods are ready for unloading at the agreed destination.
● The buyer usually handles the unloading and any onward transport from that point.
● The seller has to pay for export and import clearance, duties, taxes, VAT, and other charges. They also arrange and pay for international and local transport. Additionally, the seller bears all risks until the goods are ready for unloading at the agreed destination.
● The buyer usually handles the unloading and any onward transport from that point.
Incoterms for sea and inland waterway transport
The below Incoterms apply to goods transported only using sea, maritime and inland waterways.
FAS - Free Alongside Ship
● Under FAS, the seller places goods near the buyer’s chosen vessel at the decided port of shipment.
● The seller pays for transporting of goods to the port and handles export clearance as well.
● The risk and cost pass to the buyer once the goods are alongside the ship. They must arrange loading, main freight, insurance, and import clearance.
● The seller pays for transporting of goods to the port and handles export clearance as well.
● The risk and cost pass to the buyer once the goods are alongside the ship. They must arrange loading, main freight, insurance, and import clearance.
FOB - Free on Board
● As per the Incoterm FOB, the seller delivers the goods on board the vessel at the decided shipment port.
● The seller carries goods to the port, and loads them onto the buyer's vessel. The seller bears all costs and risk up to this point.
● The buyer pays for main freight, insurance, and import clearance. They bear all risks once the goods are on the vessel.
● The seller carries goods to the port, and loads them onto the buyer's vessel. The seller bears all costs and risk up to this point.
● The buyer pays for main freight, insurance, and import clearance. They bear all risks once the goods are on the vessel.
CFR - Cost and Freight
● As per CFR, the seller pays the cost of the goods and the main sea freight to the decided destination.
● The seller handles transport contracts and exports the goods. They are also responsible for loading the goods on board.
● The buyer bears risk after loading is done. They must arrange for insurance (if desired), handle import clearance, and all costs at the destination port.
● The seller handles transport contracts and exports the goods. They are also responsible for loading the goods on board.
● The buyer bears risk after loading is done. They must arrange for insurance (if desired), handle import clearance, and all costs at the destination port.
CIF - Cost, Insurance and Freight
● Under the Incoterm CIF, the seller pays for the cost of the goods, main sea freight, and a minimum‑level marine insurance up to the named port.
● The seller even has to arrange cargo insurance and load the goods on board.
● Once the goods are loaded on board, the buyer bears the risk. They are required to handle import clearance and all costs at the destination port.
● The seller even has to arrange cargo insurance and load the goods on board.
● Once the goods are loaded on board, the buyer bears the risk. They are required to handle import clearance and all costs at the destination port.
Which Incoterms should Indian exporters use?
Understanding Incoterms in export transactions can help Indian exporters clearly define their shipping responsibilities. Additionally it establishes where and when the risk transfers from seller to buyer.
The “best” Incoterm, for you as a seller, depends on your individual risk appetite, and your buyer’s profile.
However, the below ones can be suitable for many exporters:
The “best” Incoterm, for you as a seller, depends on your individual risk appetite, and your buyer’s profile.
However, the below ones can be suitable for many exporters:
● FOB (Free on Board): Useful for sellers who want relatively lower risk responsibilities like documentation work and logistical load. Seller responsibility ends once goods are loaded onto the vessel.
● FCA (Free Carrier): Useful if you want to keep risk and responsibility low as the buyer pays for the freight and handles all import related tasks.
● EXW (Ex Works): Buyer pays for freight, export and import customs. The seller’s responsibility ends when goods are presented at their own premises.
● CIF/CFR (Cost, Insurance, Freight / Cost & Freight): Useful if the seller wants to quote a “delivered‑to‑port” price.
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.
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.
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.
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.
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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.
9. What happened to DDU Incoterms?
Incoterms 2010 replaced DDU (Delivered Duty Unpaid), as well as 3 other terms with DAT (Delivery at Terminal) and DAP (Delivery at Place). The change replaced pre-existing 13 Incoterms with currently accepted 11.
9. How do Incoterms in shipping work?
Incoterms define who pays for transport, insurance, and customs, and where the risk passes from seller to buyer. They are included in the contracts for FOB, CIF, FAS etc.
10. What are the categories of Incoterms?
Incoterms are grouped into E, F, C, and D categories:
● E (EXW): Buyer handles most responsibilities.
● F (FCA/FAS/FOB): Seller delivers to carrier/port, buyer arranges freight.
● C (CFR/CIF/CPT/CIP): Seller pays freight (and insurance under CIF/CIP) but risk passes to buyer early.
● D (DAP/DPU/DDP): Seller brings goods to the buyer's country. Under DDP, the seller takes charge of the heaviest duties.
● E (EXW): Buyer handles most responsibilities.
● F (FCA/FAS/FOB): Seller delivers to carrier/port, buyer arranges freight.
● C (CFR/CIF/CPT/CIP): Seller pays freight (and insurance under CIF/CIP) but risk passes to buyer early.
● D (DAP/DPU/DDP): Seller brings goods to the buyer's country. Under DDP, the seller takes charge of the heaviest duties.
11. What is the difference between CIF and FOB?
Under FOB, the buyer pays freight and generally also arranges insurance. While under CIF, the seller pays freight and arranges for minimum‑level marine insurance.
12. What is the full form of Incoterms?
Incoterms’ full form is International Commercial Terms. These are standardized rules published by the International Chamber of Commerce (ICC) to facilitate clear export–import contracts.
13. How many Incoterms are there?
As per Incoterms 2010 and 2020 standards there are 11 total Incoterms.
Published on July 19, 2022.
Updated on May 13, 2026.
Sources:
1. https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
2. https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
3. https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
4. https://www.investopedia.com/terms/f/fob.asp
5. https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
6. https://www.investopedia.com/terms/c/cif.asp
7. https://www.investopedia.com/terms/c/carriage-paid-cpt.asp
8. https://www.investopedia.com/terms/c/carriage-and-insurance-paid-cip.asp
9. https://www.incotermsexplained.com/the-incoterms-rules/the-eleven-rules-in-brief/delivered-place/
10. https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
11. https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
Updated on May 13, 2026.
Sources:
1. https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
2. https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
3. https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
4. https://www.investopedia.com/terms/f/fob.asp
5. https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
6. https://www.investopedia.com/terms/c/cif.asp
7. https://www.investopedia.com/terms/c/carriage-paid-cpt.asp
8. https://www.investopedia.com/terms/c/carriage-and-insurance-paid-cip.asp
9. https://www.incotermsexplained.com/the-incoterms-rules/the-eleven-rules-in-brief/delivered-place/
10. https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
11. https://incodocs.com/blog/incoterms-2020-explained-the-complete-guide/
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