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International Commercial Terms

By Admin 19 Views Aug 03, 2025
International Commercial Terms

Incoterms (short for International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international trade, especially regarding the delivery of goods, transport costs, insurance, customs clearance, and risk transfer.

🔹 Key Functions of Incoterms

  1. Clarify who pays for shipping, insurance, and customs duties.
  2. Define where the risk transfers from seller to buyer.
  3. Help avoid misunderstandings in cross-border trade.

🔹 2020 Incoterms Overview

The latest version is Incoterms 2020, which includes 11 terms, grouped by mode of transport:

🚢 For Any Mode of Transport

IncotermDescription
EXW (Ex Works)Buyer takes all responsibility from seller's premises.
FCA (Free Carrier)Seller delivers goods to a named place; risk transfers there.
CPT (Carriage Paid To)Seller pays for carriage, but risk passes earlier.
CIP (Carriage and Insurance Paid To)Like CPT, but seller also provides insurance.
DAP (Delivered at Place)Seller delivers at buyer’s location; risk transfers upon arrival.
DPU (Delivered at Place Unloaded)Seller delivers and unloads goods; risk after unloading.
DDP (Delivered Duty Paid)Seller handles everything including import duties; max responsibility.


🚢 🚛 For Sea and Inland Waterway Transport Only

IncotermDescription
FAS (Free Alongside Ship)Seller delivers next to ship; buyer handles loading and beyond.
FOB (Free On Board)Seller loads goods on vessel; risk passes at ship's rail.
CFR (Cost and Freight)Seller pays for shipping; buyer takes risk once on board.
CIF (Cost, Insurance and Freight)Like CFR, but seller provides insurance to destination port.


🔹 Examples of Use

  1. EXW Tokyo: Buyer arranges pickup from seller's factory in Tokyo.
  2. FOB Shanghai: Seller handles goods to the port and onto the ship.
  3. DAP New York: Seller delivers to buyer's location in New York; buyer handles import duties.
  4. CIF Rotterdam: Seller pays shipping and insurance to Rotterdam; buyer gets risk once goods are on ship.


*here's a comparison chart followed by a decision guide to help you choose the right Incoterm for your trade scenario:

🔹 Incoterms 2020 Comparison Chart

IncotermWho Pays for Transport?Who Handles Export/Import?Where Risk Transfers?Insurance Required?
EXWBuyerBuyerSeller's premises❌
FCABuyer (after named place)Seller (export) / Buyer (import)At named place❌
CPTSellerSeller (export) / Buyer (import)After delivery to carrier❌
CIPSellerSeller (export) / Buyer (import)After delivery to carrier✅ (minimum)
DAPSellerSeller (export) / Buyer (import)At buyer's named place (before unloading)❌
DPUSellerSeller (export) / Buyer (import)After unloading at destination❌
DDPSellerSeller (export & import)At buyer's premises❌
FASBuyerSeller (export) / Buyer (import)Alongside ship at port❌
FOBBuyerSeller (export) / Buyer (import)Once on board ship❌
CFRSellerSeller (export) / Buyer (import)Once on board ship❌
CIFSellerSeller (export) / Buyer (import)Once on board ship✅ (minimum)


🔹 Decision Guide: Choosing the Right Incoterm

How much responsibility do you want to take as the seller?

  1. Least Responsibility: EXW
  2. Moderate: FCA, FOB
  3. More Responsibility: CFR, CIF, CPT, CIP
  4. Maximum Responsibility: DDP

Are you using sea or any mode of transport?

  1. Sea Freight Only: FAS, FOB, CFR, CIF
  2. Any Transport (air, truck, multimodal): EXW, FCA, CPT, CIP, DAP, DPU, DDP

Do you want insurance included?

  1. Required: CIF, CIP
  2. Optional/Not included: All others

Do you or your customer handle import duties?

  1. Seller Handles (You): DDP
  2. Buyer Handles: All others

🧭 Quick Examples Based on Role

  1. You are the exporter (seller) and want minimal risk:
  2. → Use EXW or FCA
  3. You want to manage shipping but not import duties:
  4. → Use CFR, CPT, or DAP
  5. You want to control everything and make it easy for the buyer:
  6. → Use DDP
  7. You are the buyer and want control of the shipment early:
  8. → Request EXW, FCA, or FOB


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