Glossary
What are Incoterms?
Incoterms® (International Commercial Terms) are 11 standardized 3-letter codes published by the ICC that define exactly where the seller's responsibility ends and the buyer's begins on cost, risk, insurance, and customs clearance.
The 11 Incoterms (2020 revision)
Used for any mode of transport:
- EXW — Ex Works (buyer picks up at seller's factory)
- FCA — Free Carrier
- CPT — Carriage Paid To
- CIP — Carriage and Insurance Paid To
- DAP — Delivered at Place
- DPU — Delivered at Place Unloaded
- DDP — Delivered Duty Paid
Used for sea/inland waterway only:
- FAS — Free Alongside Ship
- FOB — Free On Board
- CFR — Cost and Freight
- CIF — Cost Insurance Freight
What each Incoterm decides
For every shipment, an Incoterm answers four questions: 1. Who pays for transport to each leg (origin → port → destination → door)? 2. Who carries the risk if cargo is damaged/lost at each point? 3. Who buys insurance (and at what minimum coverage)? 4. Who handles customs export and import clearance?
The 80/20 rule
Three Incoterms cover most B2B trade: FOB, CIF, DDP. See the [Incoterms comparison guide](/blog/fob-vs-cif-vs-ddp-which-incoterm-protects-new-importers/) for which one protects you in your specific scenario.
Common mistake
Many first-time importers accept EXW because it has the lowest sticker price. EXW means you handle even the export-side trucking and export customs in a country where you have zero contacts. Real cost ends up 2-3× the EXW quote.
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