What Incoterms do and do not do
Incoterms are a set of three-letter trade terms published by the International Chamber of Commerce. The current edition is Incoterms 2020. They answer three questions and no others.
- Who arranges and pays for carriage, and to what point.
- Where risk of loss or damage passes from seller to buyer.
- Who handles export and import formalities, and who bears those costs.
Incoterms do not transfer ownership of the goods. They do not set the price, the currency, or the payment terms. They do not say what happens if the buyer fails to pay, and they are not a substitute for a contract of sale. A contract that says only "CIF Kochi" and nothing else has left most of the important questions unanswered.
An Incoterm should always be written with the edition and a named place: FCA Kochi (Vallarpadam ICTT) Incoterms 2020. "FOB" on its own is an invitation to a dispute.
The eleven terms
Seven terms work for any mode of transport, including containers moving by sea. Four are for sea and inland waterway only, and should be used only where the goods are handed over at the ship's rail or alongside — in practice, bulk and break-bulk.
| Term | Name | Mode | Main carriage paid by |
|---|---|---|---|
| EXW | Ex Works | Any | Buyer |
| FCA | Free Carrier | Any | Buyer |
| CPT | Carriage Paid To | Any | Seller |
| CIP | Carriage and Insurance Paid To | Any | Seller |
| DAP | Delivered at Place | Any | Seller |
| DPU | Delivered at Place Unloaded | Any | Seller |
| DDP | Delivered Duty Paid | Any | Seller |
| FAS | Free Alongside Ship | Sea only | Buyer |
| FOB | Free on Board | Sea only | Buyer |
| CFR | Cost and Freight | Sea only | Seller |
| CIF | Cost, Insurance and Freight | Sea only | Seller |
Where risk actually passes
This is the part that gets misread most often. Under the C terms — CPT, CIP, CFR and CIF — the seller pays for carriage to the destination but risk passes much earlier, at origin. Paying the freight is not the same as carrying the risk.
| Term | Risk passes when | Import clearance by |
|---|---|---|
| EXW | Goods are placed at the buyer's disposal at the seller's premises | Buyer |
| FCA | Goods are handed to the buyer's carrier at the named place | Buyer |
| CPT / CIP | Goods are handed to the first carrier at origin | Buyer |
| FAS | Goods are placed alongside the vessel | Buyer |
| FOB / CFR / CIF | Goods are on board the vessel at the port of shipment | Buyer |
| DAP | Goods arrive at destination, ready for unloading | Buyer |
| DPU | Goods arrive at destination and are unloaded | Buyer |
| DDP | Goods arrive at destination, ready for unloading, duty paid | Seller |
Note the pattern at the ends: EXW puts the most on the buyer, DDP puts the most on the seller, and DDP is the only term where the seller clears the goods for import.
What changed in 2020
- DAT became DPU. Delivered at Terminal was renamed Delivered at Place Unloaded, because the delivery point never had to be a terminal. It is the only term where the seller must unload.
- Insurance levels split. CIP now requires the seller to hold insurance at Institute Cargo Clauses (A) level, a broad all-risks cover. CIF still requires only Clauses (C), which is narrow. Parties can agree otherwise, but the defaults now differ.
- FCA gained an on-board bill of lading option. The parties can agree that the buyer instructs the carrier to issue an on-board bill to the seller, which solves the old problem of FCA sellers being unable to satisfy a letter of credit.
- Own transport recognised. FCA, DAP, DPU and DDP now acknowledge that a party may carry the goods in its own vehicles rather than engaging a third-party carrier.
- Security obligations allocated. Each term now states who is responsible for transport-related security requirements and who bears the cost.
Terms Kerala exporters should reconsider
FOB for containerised cargo
FOB puts risk transfer at the moment the goods are on board. But a container leaves your control days earlier, when it is handed in at the terminal or the container freight station. Everything that happens in between — yard handling, stack movement, a delay before loading — sits in a gap where you carry the risk but have no control at all.
Use FCA instead for anything in a box. Risk passes when you hand over, which is when you actually stop being able to do anything about it. The 2020 on-board bill of lading provision removed the last practical reason to prefer FOB.
EXW for exports
Under EXW the buyer handles export clearance. As the Indian exporter, you then have a shipment leaving the country on someone else's filing, and you may struggle to obtain proof of export for GST purposes or to claim drawback and RoDTEP. FCA at your factory gate achieves almost the same commercial split while keeping the export declaration where it belongs.
DDP into an unfamiliar market
DDP makes you responsible for import duty and clearance in the buyer's country, in a system you do not know, often where a non-resident cannot easily be the importer of record. DAP moves the line back to the buyer's door and leaves import formalities with the party who can actually complete them.
CIF and thinking you are covered
Under CIF the seller buys insurance at Clauses (C) level by default. That is a restricted cover. Buyers frequently assume CIF means fully insured, discover otherwise after a loss, and find the claim falls outside the policy. If you are the buyer on CIF terms, either specify the cover you want in the contract or arrange your own.
Choosing a term
Two questions settle most cases.
- Who can actually control the goods at each stage? Risk should sit with whoever is in a position to prevent the loss. That principle alone rules out FOB for containers and EXW for exports.
- Who gets the better freight rate? If you ship regular volume, controlling the main carriage is usually worth money. If your counterparty ships far more than you, letting them nominate may be cheaper even after their margin.
Everything else is negotiation. Just write the term, the named place and the edition into the contract, and make sure your bill of lading, your insurance and your customs declaration all describe the same arrangement.
Common questions
Is Incoterms 2020 compulsory? Can we still use Incoterms 2010?
You can use any edition you like, provided the contract names it. Incoterms are contractual, not statutory. Naming the edition matters, because DAT exists in 2010 and not in 2020, and the insurance requirement under CIP differs between them.
What is the difference between FOB and FCA?
Risk transfer point. Under FOB risk passes when the goods are on board the vessel. Under FCA it passes when the goods are handed to the buyer's carrier, which for a container is at the terminal or CFS. FCA reflects how containerised cargo actually moves.
Does the Incoterm decide who is the importer of record in India?
In practice yes, for most terms the buyer clears the goods for import and is the importer of record. DDP is the exception, where the seller undertakes import clearance, which is often difficult for a non-resident seller in India.
Which Incoterm is best for a first-time exporter?
FCA or CPT for most containerised cargo. Both keep the export declaration with you, which protects your drawback and RoDTEP position, without committing you to obligations in a market you do not know.