What Are Incoterms?

International Commercial Terms Explained

Summary

Incoterms® (International Commercial Terms) are internationally recognized trade rules that define the responsibilities, costs and risks between buyers and sellers in commercial transactions.
Incoterms clarify who is responsible for transportation, export and import formalities, insurance, loading, unloading and delivery obligations during the movement of goods.
The current official version is Incoterms® 2020, published by the International Chamber of Commerce (ICC) and containing 11 standardized trade terms.
Incoterms are used worldwide in international sales contracts to reduce misunderstandings and define the allocation of costs, risks and logistics responsibilities.
Choosing the correct Incoterm is essential for efficient freight management, customs compliance and transparent global supply chains.

What Does Incoterms Mean?

Incoterms stands for International Commercial Terms.

They are a globally accepted set of standardized rules that define the obligations of buyers and sellers when goods are sold and transported internationally.

Incoterms answer important logistics questions:

Who arranges transportation?
Who pays freight costs?
Who handles customs clearance?
Who is responsible for insurance?
When does risk transfer from seller to buyer?
Who manages loading and unloading?

The rules are published by the International Chamber of Commerce (ICC) and have become a global standard in international trade contracts.

Why Are Incoterms Important in International Trade?

International logistics involves many parties:

Exporters
Importers
Freight forwarders
Carriers
Customs authorities
Insurance providers
Warehouses

Without clearly defined responsibilities, disputes can arise regarding:

Unexpected transport costs
Damaged goods
Customs obligations
Delivery delays
Insurance responsibilities

Incoterms create a common language between trading partners and provide clarity about the delivery process.

How Do Incoterms Work?

An Incoterm is usually included in a sales contract together with a specific location.

FCA Supplier Warehouse Berlin – Incoterms® 2020

This means:

The seller must deliver the goods according to FCA rules.
The agreed location is the supplier warehouse in Berlin.
The responsibilities are interpreted according to Incoterms® 2020.

A complete Incoterm reference includes:

[Incoterm] + [Named Place] + [Version]

Examples:

EXW Factory Munich – Incoterms® 2020
FOB Shanghai Port – Incoterms® 2020
CIF Rotterdam Port – Incoterms® 2020
DDP Customer Warehouse Paris – Incoterms® 2020

What Do Incoterms Define?

Incoterms mainly regulate three important areas:

1. Costs

Incoterms define which party pays for specific logistics activities.

Examples:

Inland transportation
Export documentation
Ocean freight
Insurance
Import duties
Terminal charges

2. Risk Transfer

Incoterms define the point where responsibility for loss or damage transfers from seller to buyer.

Example:

Under FOB:

Seller is responsible until goods are loaded onto the vessel.
Buyer assumes risk after loading.

3. Responsibilities

Incoterms define operational obligations, including:

Transport organization
Customs formalities
Documentation
Delivery requirements

Incoterms 2020: The Current Standard

Incoterms® 2020

The current version is Incoterms® 2020.

The ICC introduced Incoterms® 2020 to reflect modern international trade practices and improve clarity for businesses worldwide.

Incoterms® 2020 includes:

11 official Incoterms rules
Updated guidance
Improved explanations
Clearer responsibilities between buyers and sellers

The 11 Incoterms® 2020 Rules Explained

Incoterms are divided into two main groups:

Rules for any mode of transport
Rules for sea and inland waterway transport

Incoterms for Any Mode of Transport

These terms can be used for:

Road freight
Rail freight
Air freight
Ocean freight
Multimodal transport

EXW – Ex Works

EXW (Ex Works) places the minimum responsibility on the seller.

The seller:

Makes goods available at their location
Provides basic documentation

The buyer:

Organizes pickup
Handles transportation
Manages export and import procedures

EXW gives maximum control and responsibility to the buyer.

FCA – Free Carrier

FCA (Free Carrier) means the seller delivers goods to a carrier nominated by the buyer.

Seller responsibilities:

Prepare goods
Complete export clearance
Deliver goods to agreed location

Buyer responsibilities:

Main transportation
Import procedures
Final delivery

FCA is widely used for international road freight and container logistics.

CPT – Carriage Paid To

Under CPT, the seller:

Arranges transportation
Pays freight costs until the named destination

Risk transfers when goods are handed to the first carrier.

CIP – Carriage and Insurance Paid To

CIP is similar to CPT but includes insurance.

The seller:

Pays transportation
Provides insurance coverage
Delivers goods to the carrier

DAP – Delivered at Place

Under DAP, the seller delivers goods to a named destination.

Seller manages:

Transport
Delivery to destination

Buyer manages:

Import clearance
Duties and taxes

DPU – Delivered at Place Unloaded

DPU requires the seller to deliver and unload goods at the agreed destination.

Seller responsibilities include:

Transport
Delivery
Unloading

DPU replaced the former DAT Incoterm in Incoterms® 2020.

DDP – Delivered Duty Paid

DDP places maximum responsibility on the seller.

The seller handles:

Transportation
Export clearance
Import clearance
Duties and taxes
Final delivery

The buyer receives goods ready for use.

Incoterms for Sea and Inland Waterway Transport

These rules are specifically designed for maritime transport.

FAS – Free Alongside Ship

Under FAS:

The seller delivers goods alongside the vessel.

The buyer manages:

Loading
Ocean freight
Import procedures

FOB – Free on Board

FOB is one of the most widely used maritime Incoterms.

Seller:

Delivers goods to port
Clears export
Loads goods onto vessel

Buyer:

Pays ocean freight
Handles import

Risk transfers when goods are loaded onboard the vessel.

CFR – Cost and Freight

Under CFR:

Seller:

Pays ocean freight to destination port

Buyer:

Takes risk after loading
Handles insurance if required

CIF – Cost, Insurance and Freight

CIF is similar to CFR but includes insurance.

Seller:

Pays ocean freight
Provides minimum insurance coverage

Buyer:

Handles import procedures
Takes risk after shipment loading

Incoterms Overview Table

Incoterm	Seller Responsibility	Buyer Responsibility	Transport
EXW	Minimal	Almost everything	All modes
FCA	Export cleared delivery	Main transport	All modes
CPT	Transport paid	Risk after carrier handover	All modes
CIP	Transport + insurance	Import	All modes
DAP	Delivery to destination	Import clearance	All modes
DPU	Delivery + unloading	Import clearance	All modes
DDP	Almost complete delivery	Receiving goods	All modes
FAS	Delivery alongside vessel	Ocean transport	Sea
FOB	Loading vessel	Ocean transport	Sea
CFR	Ocean freight paid	Insurance/import	Sea
CIF	Freight + insurance	Import	Sea

Incoterms and Freight Costs

Incoterms directly influence freight cost responsibility.

EXW Shipment

Buyer pays:

Pickup
Export transport
International freight
Import costs

DDP Shipment

Seller pays:

Export costs
Freight
Customs
Duties
Delivery

Choosing the wrong Incoterm can create unexpected costs.

Incoterms and Customs Clearance

Customs responsibilities vary significantly between Incoterms.

EXW

Buyer usually manages export procedures.

FCA

Seller manages export clearance.

DDP

Seller manages export and import clearance.

Companies should always evaluate customs requirements before agreeing on an Incoterm.

Incoterms and Cargo Insurance

Not all Incoterms require insurance.

Insurance obligations:

Incoterm	Insurance Required
EXW	No
FCA	No
CPT	No
CIP	Yes
DAP	No
DDP	No
CIF	Yes

Companies may still purchase additional cargo insurance depending on shipment value and risk.

How to Choose the Right Incoterm

Transport Mode

Examples:

Ocean freight → FOB, CIF, CFR
Road freight → FCA, DAP, DDP
Air freight → FCA, CPT, CIP

Logistics Experience

Experienced buyers may prefer:

Companies wanting a complete delivery solution may choose:

Control Requirements

Buyers wanting transport control often prefer buyer-controlled terms.

Sellers offering complete logistics solutions may prefer seller-controlled terms.

Common Incoterm Mistakes

Using FOB for Every Shipment

FOB is designed for sea transport and may not be suitable for container terminal handovers or other transport modes.

Not Specifying the Version

Contracts should clearly state:

Incoterms® 2020

to avoid misunderstandings.

Ignoring the Named Location

The exact place determines responsibilities.

Incorrect:

DAP Germany

Correct:

DAP Customer Warehouse Berlin – Incoterms® 2020

Confusing Ownership Transfer With Risk Transfer

Incoterms define delivery obligations and risk allocation.

They do not automatically define:

Ownership transfer
Payment terms
Contract law

Incoterms in Modern Supply Chain Management

Global supply chains depend on clear responsibility structures.

Incoterms support:

International sourcing
Manufacturing networks
Freight forwarding
Import/export operations
Multimodal logistics

They create transparency between companies operating across different countries and legal systems.

Incoterms Solutions from OnTime Transport Group

OnTime Transport Group supports companies with international freight solutions based on different Incoterms requirements.

Our logistics services include:

Road freight across Europe
International transportation
Customs coordination
Multimodal transport
Ocean freight solutions
Air freight coordination
Door-to-door logistics

Understanding Incoterms is essential for efficient global transport planning. With experienced logistics professionals and an international partner network, OnTime Transport Group helps companies manage shipments securely from supplier to final destination.

Frequently Asked Questions About Incoterms

What does Incoterms mean?

Incoterms means International Commercial Terms and describes standardized rules defining buyer and seller responsibilities in trade contracts.

How many Incoterms are there?

The current Incoterms® 2020 version contains 11 official trade terms.

Who creates Incoterms?

Incoterms are published by the International Chamber of Commerce (ICC).

Are Incoterms legally required?

No. Companies voluntarily include Incoterms in contracts to define responsibilities clearly.

What is the difference between EXW and DDP?

EXW places most responsibilities on the buyer, while DDP places most responsibilities on the seller.

Which Incoterm is best for international shipping?

The best Incoterm depends on transport mode, logistics capabilities, customs requirements and commercial objectives.

About OnTime Transport Group

At OnTime Transport Group, we provide professional, reliable, and flexible road freight solutions across Europe. Specializing in Full Truckload (FTL), Less Than Truckload (LTL), and comprehensive freight forwarding, we help businesses simplify their logistics, optimize supply chains, and ensure on-time delivery. With our experienced team, trusted European carrier network, and real-time tracking, we guarantee that your cargo moves safely, efficiently, and transparently – no matter the size or complexity of the shipment.