Incoterms are eleven rules, each denoted by a three-letter code and carrying the same meaning for buyers and sellers all over the world. Each rule defines the basic terms of delivery: who organises and pays for transport at different stages of the route, who is responsible for export and import clearance, who is obliged to arrange insurance and, most importantly, at what moment the risk of loss of or damage to the goods passes from the seller to the buyer.

It is important to bear in mind that Incoterms do not regulate all the terms of a transaction. They do not determine the moment when ownership of the goods passes – this is established by the sales contract and the applicable law. The rules also do not set the price of the goods, the procedure and timing of payment or the consequences of breach of contractual obligations. The parties agree all these matters separately. The explanations below are a simplified guide, not legal advice. It is important to state in the contract that delivery is made on “Incoterms® 2020” terms and always to name the specific place, for example “FOB Abidjan, Incoterms® 2020”.

Seven of the Incoterms® rules can be used regardless of the mode of transport – for sea, rail and road transport, including container transport. The other four are intended exclusively for sea and inland waterway transport. In modern container trade they are often applied in situations for which the rules designed for any mode of transport are more appropriate.

EXW (Ex Works). The seller makes the goods available at its premises or another agreed place. Its delivery obligations end there. The buyer organises loading, transport, and export and import clearance, and bears the risks from the moment the goods are placed at its disposal. This term implies minimal obligations for the seller and suits buyers who have their own logistics and the ability to arrange export clearance in the seller’s country.

FCA (Free Carrier). The seller hands the goods over to the carrier or another person nominated by the buyer at the agreed place and completes export clearance. At that moment the risk passes to the buyer. FCA is often recommended for container transport: the goods are handed over at a terminal or warehouse rather than on board the vessel, as under the sea rules.

CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To). The seller concludes the contract of carriage and pays for delivery to the agreed place of destination. The risk, however, passes to the buyer earlier – at the moment the goods are handed to the first carrier. Under CIP the seller is also obliged to arrange cargo insurance with broad cover under the Institute Cargo Clauses (A).

DAP (Delivered at Place) and DPU (Delivered at Place Unloaded). The seller organises delivery to the agreed place of destination and bears the risks until delivery. Under DAP the goods are made available to the buyer ready for unloading from the arriving means of transport, and the buyer carries out the unloading. Under DPU the seller organises and pays for unloading. In both cases the buyer handles import clearance and the payment of duties and taxes.

DDP (Delivered Duty Paid). This rule implies the maximum obligations for the seller. It organises delivery to the agreed place of destination, carries out import clearance and pays duties and taxes. This term requires the seller to be able to complete import formalities in the buyer’s country.

FAS (Free Alongside Ship). The seller delivers the goods to the named port of shipment and places them alongside the vessel nominated by the buyer. From that moment the risk passes to the buyer, who organises loading onto the vessel and onward transport. This rule is rarely used for containerised cargo.

FOB (Free On Board). The seller delivers the goods to the port of shipment and loads them on board the vessel nominated by the buyer. The risk passes to the buyer when the goods are on board. The buyer organises and pays for sea transport and the subsequent stages of delivery.

CFR (Cost and Freight) and CIF (Cost, Insurance and Freight). The seller pays for sea transport to the agreed port of destination, but the risk passes to the buyer already at the port of departure – once the goods are placed on board the vessel. Under CIF the seller additionally arranges cargo insurance with minimum cover under the Institute Cargo Clauses (C), which covers only major incidents.

Most of our customers choose one of four delivery terms. EXW suits buyers who prefer to organise transport themselves at all stages. FOB lets the buyer control the choice of carrier and the cost of sea freight, while we are responsible for delivering the goods on board the vessel. CIF implies a single cost of delivery to the port of destination, including minimum insurance cover. DAP allows the goods to be received directly at the buyer’s site, with the cost and date of delivery agreed in advance.

Since we organise the transport of our cargo ourselves, we can offer customers CIF and DAP terms. If other terms suit your delivery – for example FCA, CPT, CIP or DDP – let us know. We will review the request and confirm the possible options.

To understand how important the choice of delivery terms is, consider one example: a 20-foot container of cocoa butter shipped from a West African port to a chocolate factory in Germany. Let us compare how the same delivery would be organised on FOB, CIF and DAP terms.

FOB (port of shipment). We deliver the container to the port, complete export clearance and load the goods on board the vessel nominated by the buyer. From that moment the risk passes to the buyer. The buyer pays for sea freight, insurance (if provided for), port charges at the port of destination, import clearance, duties and VAT, and delivery from the port to the factory. If the cargo is damaged during the sea voyage, compensation is dealt with under the buyer’s insurance, if one has been taken out.

CIF (port of destination). We pay for sea freight to the agreed port of destination and arrange minimum cargo insurance in favour of the buyer. As with FOB, the risk passes to the buyer at the moment the goods are loaded on board the vessel at the port of departure. The buyer pays for import clearance, duties and VAT, port charges at the port of destination if they are not included in the contract of carriage, and delivery to the factory.

DAP (factory). We organise delivery along the entire route: we pay for sea freight and arrange transport from the port of destination to the factory, including the necessary transit formalities. The risk stays with us until the container is delivered to the agreed place and made available to the buyer on the arriving vehicle, ready for unloading. The buyer is responsible for unloading, import clearance and the payment of duties and taxes. The delivery price includes organising the whole route to the factory, which allows the buyer to agree the total cost and delivery date in advance.

None of these terms is universal. A buyer with a regular forwarder and good sea freight rates may prefer FOB. If it is more important to know the cost of delivery to the port or factory and to reduce the number of logistics tasks, CIF or DAP may be more convenient. The main thing is to agree in advance where the seller’s obligations end and the buyer’s begin.

Each delivery is accompanied by a commercial invoice, packing list, transport document, certificate of origin and the quality documents provided for in the contract. Depending on the chosen term, the division of responsibilities for preparing and providing documents changes.

Under the D group of terms, the seller organises transport to the agreed place of destination and provides transport documents for the relevant stages of the route. The buyer uses the commercial and other necessary documents for import clearance. We prepare the set of documents in accordance with the contract terms and, for payments under a letter of credit, also take the bank’s requirements into account. A mismatch between the documents and the terms of the letter of credit can delay payment in the same way as a missing necessary document delays customs clearance of the cargo.

Several factors are worth considering when choosing delivery terms.

1. Control over transport. If you prefer to choose carriers yourself and manage delivery, EXW, FCA or FOB will suit. If you want to entrust the organisation of transport to the seller, consider the C or D group of terms.

2. Mode of transport. FAS, FOB, CFR and CIF are intended only for sea and inland waterway transport. For container, rail, road and air transport, FCA, CPT, CIP, DAP, DPU or DDP are usually more appropriate.

3. Customs clearance. Under the D group of terms, the seller organises delivery to the place of destination, but import clearance and the payment of duties remain the buyer’s responsibility. The exception is DDP, under which these obligations also lie with the seller. Therefore make sure in advance that you are able to arrange import clearance in the country of destination.

4. Insurance. CIF and CIP provide for mandatory insurance by the seller, but with different levels of cover. Under the other terms the parties may agree separately on cargo insurance or arrange it themselves.

5. Payment terms. Incoterms do not regulate the procedure and timing of payment. These matters, like the specific place of delivery, must be agreed separately and recorded in the contract.

If you need help choosing delivery terms, tell us about the products you are buying and the delivery route. We will help you select a suitable option.

Under EXW and FCA, it is important for the buyer to agree with the seller in advance on obtaining the documents needed for export clearance and proof of delivery. Under CIF and CIP the seller additionally provides an insurance document. Under CIF and CFR the buyer is also given a bill of lading, which is needed to take delivery of the cargo and may be required for payments under a letter of credit.

In the table we have listed the four terms that our customers use most often and compared how responsibilities are divided between the seller and the buyer.