Incoterms: A Quick Guide for Normal Humans
Incoterms (short for International Commercial Terms) are like the rulebook for global shipping deals. They spell out who’s responsible for what when a product moves from one country to another—who pays for freight, who handles insurance, who clears customs, and who takes the hit if something goes wrong.
There are 11 official Incoterms, and each one sets clear ground rules between the buyer and seller. Think of them as the job descriptions for each party in a shipment. Some mean “seller handles everything,” others shift the risk and cost early to the buyer.
They don’t decide what tariffs get charged—that’s up to Customs. But they do help avoid expensive misunderstandings about who’s supposed to do what. So if you’re doing international business, you need to know your Incoterms, or partner with someone who does.
The 11 Incoterms, in plain English
These terms fall into two groups—some for any mode of transport, others just for ocean/river shipping.
For any mode of transport:
EXW (Ex Works): Buyer picks up at seller’s door.
FCA (Free Carrier): Seller hands goods off to a named place.
CPT (Carriage Paid To): Seller pays freight to destination.
CIP (Carriage and Insurance Paid To): Same as CPT, but with insurance.
DAP (Delivered at Place): Seller gets it to the destination. Buyer unloads.
DPU (Delivered at Place Unloaded): Seller delivers and unloads.
DDP (Delivered Duty Paid): Seller covers everything, including import duties.
For sea/inland waterway only:
FAS (Free Alongside Ship): Seller gets goods next to the ship.
FOB (Free on Board): Seller gets goods on the ship.
CFR (Cost and Freight): Seller pays for the ship ride.
CIF (Cost, Insurance, Freight): Same as CFR, but with insurance.
You don’t have to memorize all 11, but you do need to make sure the one you choose actually matches how your shipment will work—and who’s holding the bag if things go sideways.