Incoterms (International Commercial Terms) are a set of eleven standardized trade terms published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international trade, covering delivery, risk transfer, costs, and insurance.
What Are Incoterms 2020?
Incoterms are internationally recognized three-letter trade terms published by the International Chamber of Commerce (ICC). The current version, Incoterms 2020, defines eleven standardized rules that clarify exactly which party — buyer or seller — is responsible for transportation, insurance, customs clearance, and risk at each stage of a shipment. Choosing the right Incoterm is one of the most important decisions in structuring a commodity contract, since it directly affects pricing, liability, and logistics planning.
EXW — Ex Works
Under EXW, the seller's only obligation is to make the goods available at their own premises — a factory, warehouse, or other named location. From that point forward, the buyer bears all costs and risks, including loading, export clearance, and transportation. EXW places the minimum obligation on the seller and the maximum on the buyer, so it is typically used when the buyer has strong logistics capabilities and wants full control over the shipping process.
FCA — Free Carrier
Under FCA, the seller delivers the goods, cleared for export, to a carrier or another party nominated by the buyer at an agreed location. FCA works for any mode of transport — road, rail, air, sea, or multimodal — which makes it one of the most flexible Incoterms. Seller responsibility ends once the goods are handed to the buyer's carrier, making it a common choice for containerized cargo.
FAS — Free Alongside Ship
FAS requires the seller to deliver the goods alongside the vessel at the named port of shipment — typically on the quay or a barge. From that point, the buyer assumes all costs and risk, including loading onto the vessel. FAS is used almost exclusively for bulk and break-bulk cargo transported by sea, such as grain, ore, or other unpackaged commodities.
FOB — Free On Board
FOB is one of the most widely used Incoterms in commodity trading. The seller is responsible for the goods, and bears the associated costs and risk, until they are loaded onto the vessel at the port of shipment. Once the cargo is on board, risk transfers to the buyer, who then arranges and pays for the main carriage, insurance, and destination-side costs. FOB gives the buyer control over freight and insurance arrangements.
CFR — Cost and Freight
Under CFR, the seller pays the costs and freight required to bring the goods to the named port of destination, but risk transfers to the buyer once the goods are loaded onto the vessel at the port of origin — the same risk-transfer point as FOB. The key difference from FOB is that the seller arranges and pays for ocean freight. CFR does not include insurance, which remains the buyer's responsibility.
CIF — Cost, Insurance and Freight
CIF is one of the most common terms in international commodity trade. It works like CFR, except the seller is also required to procure marine insurance covering the buyer's risk of loss or damage during transit to the destination port. As with FOB and CFR, risk transfers to the buyer once the goods are loaded on board — even though the seller pays for freight and insurance to the destination.
CPT — Carriage Paid To
CPT is the multimodal equivalent of CFR. The seller pays for carriage to the named destination, but risk transfers to the buyer as soon as the goods are handed over to the first carrier, not when they arrive at the destination. CPT can be used for any mode of transport, making it suitable for combined sea-land or air-land commodity shipments.
CIP — Carriage and Insurance Paid To
CIP mirrors CPT but adds a requirement for the seller to purchase insurance covering the goods during transit, and under Incoterms 2020 the required coverage level was increased to match the higher standard used in CIF (Institute Cargo Clauses A, all-risk cover). CIP suits multimodal shipments where the buyer wants stronger insurance protection than the CPT minimum.
DAP — Delivered At Place
Under DAP, the seller is responsible for delivering the goods, ready for unloading, to a named destination — which may be the buyer's own facility. The seller bears all risk and cost of the main transport but is not responsible for unloading or for import clearance and duties, which remain the buyer's responsibility. DAP is common when sellers want to offer door-to-door delivery without taking on import formalities.
DPU — Delivered at Place Unloaded
DPU is the only Incoterm under which the seller is responsible for unloading the goods at the named destination, in addition to arranging and paying for transport. Risk transfers to the buyer only after the goods have been unloaded. Import clearance and duties remain the buyer's responsibility. DPU replaced the former DAT (Delivered at Terminal) rule in the 2020 revision and can be used for any destination, not only a terminal.
DDP — Delivered Duty Paid
DDP places the maximum obligation on the seller, who is responsible for delivering the goods to the buyer's named destination with all transportation, export and import clearance, duties, and taxes paid. The buyer's only responsibility is to receive and unload the goods. DDP is used when the seller wants to offer a fully landed, all-inclusive price and manages the entire export-import process on the buyer's behalf.
Choosing the Right Incoterm for a Commodity Deal
The choice of Incoterm affects who controls freight booking, who bears price risk during transit, and how the contract price is structured. FOB and CIF remain the most common choices for bulk seaborne commodities — crude oil, refined products, grains, and minerals — because they align with established shipping and insurance practices in these markets. FCA is gaining ground for containerized trade. Buyers with strong logistics networks often prefer FOB or FCA to control freight costs directly, while buyers without in-house logistics capability may prefer CIF, CPT, or CIP so the seller manages transport and insurance.
Why Getting the Incoterm Right Matters
An incorrectly specified or ambiguous Incoterm is one of the most common sources of disputes in commodity trading — leading to disagreements over who pays demurrage, who bears loss in transit, or who is liable for import duties. Every Sales and Purchase Agreement (SPA) should state the applicable Incoterm together with its version (Incoterms 2020) and the named place or port precisely, for example "CIF Jebel Ali, Incoterms 2020", to avoid any ambiguity.