Incoterms 2020, Explained Like a Human

Three letters that decide who pays for the ship, who buys the insurance, and who's crying if the container falls overboard. Here's what each one actually means for you. Free guide by QualityLink Global.

The one idea behind all of them: every Incoterm answers two questions — who pays for each leg of the journey, and at what exact point the risk moves from the seller to you. Get the term right on your purchase order and half your shipping arguments disappear.

Quick rule of thumb: if you want control, pick terms near the top (EXW, FCA, FOB) and use your own forwarder. If you want simplicity, pick terms near the bottom (DAP, DDP) — but know you're paying the seller to take the headache.

Any transport mode

EXW — Ex Works

Named place of delivery (usually the factory)

You do everything. The seller just makes the goods available at their factory gate. You arrange pickup, export clearance, freight, insurance, import clearance — the lot.

Risk moves: at the factory gate, before loading
Export clearanceYou
Main freightYou
InsuranceYou
Import clearance & dutyYou
Our take: maximum control, maximum work. Only pick this if you have a forwarder in India you trust — otherwise the "cheap" price evaporates in logistics chaos.

FCA — Free Carrier

Named place (factory, or handed to your carrier)

The seller loads the goods onto your carrier and clears them for export. From there, it's yours — freight, insurance and everything after.

Risk moves: when handed to your carrier
Export clearanceSeller
Main freightYou
InsuranceYou
Import clearance & dutyYou
Our take: the sensible default for most India orders. The seller handles the export paperwork (which they know), you control the freight (which you can negotiate).

CPT — Carriage Paid To

Named destination

The seller pays the freight to your named destination. But — and this trips people up — the risk still moves to you when the goods are handed to the first carrier, not when they arrive.

Risk moves: when handed to the first carrier
Export clearanceSeller
Main freightSeller
InsuranceYou
Import clearance & dutyYou
Our take: fine if you trust the seller's forwarder. Just remember: if the ship sinks, it's your loss even though they paid for the ticket. Buy your own insurance.

CIP — Carriage & Insurance Paid To

Named destination

CPT plus the seller arranges insurance to your destination. Note it only has to be minimum cover — for high-value goods, top it up yourself.

Risk moves: when handed to the first carrier
Export clearanceSeller
Main freightSeller
InsuranceSeller
Import clearance & dutyYou
Our take: CPT with a safety net. Good for air freight and courier shipments where you don't want to arrange cover separately.

DAP — Delivered At Place

Your named destination (e.g. your warehouse)

The seller delivers to your door — but not cleared for import. You handle customs clearance, duty and taxes on arrival.

Risk moves: on arrival at your place, before unloading
Export clearanceSeller
Main freightSeller
InsuranceSeller
Import clearance & dutyYou
Our take: pleasantly simple — one price to your door. Just make sure you have a customs broker ready, because the goods can't legally enter until you clear them.

DPU — Delivered at Place Unloaded

Your named destination, unloaded

Like DAP, but the seller also unloads the goods. The only Incoterm where the seller does the unloading.

Risk moves: after unloading at your place
Export clearanceSeller
Main freightSeller
InsuranceSeller
UnloadingSeller
Import clearance & dutyYou
Our take: handy if you don't have a forklift crew. Rarely used for containers — more common for project cargo and machinery.

DDP — Delivered Duty Paid

Your named destination, all duties paid

The seller does everything — freight, insurance, import clearance, duty, taxes. The goods just arrive.

Risk moves: on arrival at your place
Export clearanceSeller
Main freightSeller
InsuranceSeller
Import clearance & dutySeller
Our take: sounds perfect — until you realise the seller prices in the risk, and some sellers quietly cut corners on the duty they "paid". If you use DDP, work with a seller you'd trust with your wallet. Also note: some countries restrict who can act as importer of record.
Sea & inland waterway only

FAS — Free Alongside Ship

Named port of shipment

The seller delivers the goods alongside the ship at your port and clears them for export. You handle loading, freight and everything after.

Risk moves: alongside the ship at the port
Export clearanceSeller
Loading on vesselYou
Main freightYou
Import clearance & dutyYou
Our take: mostly used for bulk cargo (grain, coal). For containerised goods from India you'll almost never see it — FOB or FCA does the job.

FOB — Free On Board

Named port of shipment

The classic. The seller loads the goods on board the vessel and clears export. Risk passes the moment the goods are on the ship.

Risk moves: when loaded on board the vessel
Export clearanceSeller
Loading on vesselSeller
Main freightYou
InsuranceYou
Import clearance & dutyYou
Our take: the workhorse of India sea freight. If your supplier quotes FOB Mundra or FOB Nhava Sheva, that's normal and healthy — you pick the forwarder, you control the cost.

CFR — Cost and Freight

Named port of destination

The seller pays the freight to your port — but risk still passes when the goods go on board at origin. Same trap as CPT: they pay, you carry the risk.

Risk moves: when loaded on board the vessel
Export clearanceSeller
Main freightSeller
InsuranceYou
Import clearance & dutyYou
Our take: common, but arrange your own marine insurance — the seller isn't obliged to, and plenty don't.

CIF — Cost, Insurance & Freight

Named port of destination

CFR plus the seller buys minimum marine insurance. The most-quoted term out of India, and the most misunderstood: the insurance is in your favour as buyer, but it's minimum cover and claims go through the seller's policy.

Risk moves: when loaded on board the vessel
Export clearanceSeller
Main freightSeller
Insurance (minimum)Seller
Import clearance & dutyYou
Our take: if a supplier only quotes CIF, ask for the FOB price too — the difference tells you what their freight and insurance really cost, and you might do better with your own forwarder.

Buying from India?

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