Understanding International Commercial Terms (Incoterms) in Export and Import Trade
[2025-10-25] | By Xiamen Smart Water Technology Co., Ltd. Allen Huang
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- What Are International Commercial Terms (Incoterms)?
- The 13 Common Incoterms Explained
- Comparison of Seller & Buyer Responsibilities
- How to Choose the Right Incoterm for Your Trade
- Frequently Asked Questions (FAQ)
- Partner with Xiamen Smart Water Technology Co., Ltd.
- CTA
International Commercial Terms-often called Incoterms-are globally recognized trade rules published by the International Chamber of Commerce (ICC).
They define the responsibilities of buyers and sellers in international trade, especially regarding shipping, insurance, customs clearance, and delivery risks.
In simple terms, Incoterms clarify "who does what, when, and at whose risk."
There are 13 main Incoterms, categorized into four groups based on delivery points and responsibilities:
| Group | Type | Example Terms | Responsibility Focus |
|---|---|---|---|
| E | Departure | EXW | Seller's minimum responsibility |
| F | Main Carriage Unpaid | FCA, FAS, FOB | Buyer arranges main transport |
| C | Main Carriage Paid | CFR, CIF, CPT, CIP | Seller arranges transport |
| D | Arrival | DAF, DES, DEQ, DDU, DDP | Seller bears most responsibility |
Below are simplified explanations of each Incoterm, written in clear, human-friendly language.
EXW – Ex Works
The seller makes goods available at their premises (factory or warehouse).
Buyer handles all transport, export, and import procedures.
- Seller's Responsibility: Minimal
- Risk Transfer: At seller's location
FCA – Free Carrier
The seller delivers goods to a carrier chosen by the buyer at a specified place and clears them for export.
- Works with all transport modes (air, sea, or land).
- Risk Transfer: Once goods are handed to the carrier.
FAS – Free Alongside Ship
The seller delivers goods next to the ship at the loading port.
Buyer takes it from there.
- Used for: Sea freight only.
- Risk Transfer: When goods are placed alongside the ship.
FOB – Free On Board
The seller delivers goods on board the vessel nominated by the buyer.
Risk passes to the buyer once the goods cross the ship's rail.
- Used for: Sea transport only.
- Seller Pays For: Export clearance, loading costs.
Common Variations:
| Term | Meaning | Cost Responsibility |
|---|---|---|
| FOB Liner Terms | Buyer pays loading/unloading fees | |
| FOB Under Tackle | Buyer pays from lifting point | |
| FOB Stowed (FOBS) | Seller pays for stowing | |
| FOB Trimmed (FOBT) | Seller pays for trimming | |
| FOBST | Seller pays for both stowing & trimming |
CFR – Cost and Freight
The seller pays transportation costs to the destination port, but the risk transfers to the buyer once goods are on board the ship.
- Used for: Sea freight only.
Common Variations:
| Term | Description |
|---|---|
| CFR Liner Terms | Seller covers unloading costs |
| CFR Landed | Seller unloads goods on shore |
| CFR Ex Tackle | Seller pays until goods lifted from ship's hold |
CIF – Cost, Insurance, and Freight
Similar to CFR, but the seller also pays for insurance to protect the goods during transport.
- Used for: Sea and inland waterway transport.
- Best for: Buyers who want seller-arranged insurance.
CPT – Carriage Paid To
Seller pays the freight to a named destination, delivering goods to the first carrier.
- Used for: All transport modes.
- Risk Transfer: When goods are handed to the first carrier.
CIP – Carriage and Insurance Paid To
Like CPT, but seller also covers insurance.
- Used for: Multimodal shipping (air, sea, land).
- Seller Covers: Freight + Insurance to destination.
DAF – Delivered At Frontier
Seller delivers goods to a border point before the customs boundary.
- Used for: Land transport.
- Risk Transfer: At border before customs clearance.
DES – Delivered Ex Ship
Goods are considered delivered when they arrive on the ship at the destination port.
- Seller: Handles export clearance.
- Buyer: Handles import clearance.
DEQ – Delivered Ex Quay (Wharf)
Seller delivers goods at the port terminal or quay after unloading.
- Used for: Sea transport.
- Seller Pays: Unloading and delivery to quay.
DDU – Delivered Duty Unpaid
Seller delivers goods to the buyer's location but does not handle import customs.
- Buyer Pays: Import duties and taxes.
- Used for: Any transport method.
DDP – Delivered Duty Paid
Seller delivers goods to the buyer after completing all customs clearance and paying import duties.
Seller's Responsibility: Maximum.
Used for: All modes of transport.
| Term | Export Clearance | Transport Cost | Insurance | Import Duties | Risk Transfer Point |
|---|---|---|---|---|---|
| EXW | Buyer | Buyer | Buyer | Buyer | Seller's Premises |
| FCA | Seller | Buyer | Buyer | Buyer | Carrier Pickup |
| FOB | Seller | Buyer | Buyer | Buyer | On Board Ship |
| CFR | Seller | Seller | Buyer | Buyer | On Board Ship |
| CIF | Seller | Seller | Seller | Buyer | On Board Ship |
| CPT | Seller | Seller | Buyer | Buyer | First Carrier |
| CIP | Seller | Seller | Seller | Buyer | First Carrier |
| DDU | Seller | Seller | Seller | Buyer | Buyer's Destination |
| DDP | Seller | Seller | Seller | Seller | Buyer's Destination |
When negotiating contracts, both parties should consider:
✅ Transport type – sea, air, rail, or multimodal
✅ Insurance coverage – who pays and who benefits
✅ Customs clearance – export/import responsibilities
✅ Experience level – beginners may prefer CIF or DDP for simplicity
Q1: Which Incoterm gives the seller the least responsibility?
👉 EXW (Ex Works). The buyer handles everything from pickup to import.
Q2: What's the difference between CIF and FOB?
👉 CIF includes insurance and freight paid by the seller; FOB does not.
Q3: Can CIF be used for air freight?
👉 No, CIF is for sea or inland waterways. Use CIP for air or multimodal transport.
Q4: Which term is best for beginners in export trade?
👉 CIF (for sellers) or DDP (for buyers) simplifies the process by covering more responsibilities.
Q5: Are Incoterms legally binding?
👉 They are contractual tools-not laws-but they become binding once referenced in a contract.
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