Incoterms (International Commercial Terms) are a set of 11 standardised trade terms published by the International Chamber of Commerce (ICC). They define who — the buyer or seller — is responsible for costs, risks, and logistics at each stage of an international shipment. Incoterms do not cover payment terms, transfer of ownership, or dispute resolution — only the delivery and risk obligations.

What is the difference between EXW and FOB?

EXW (Ex Works) is the seller's minimum obligation — the buyer is responsible for everything from the seller's warehouse door, including export clearance. FOB (Free On Board) means the seller handles export clearance and delivers goods on board the vessel; the buyer takes over from that point. FOB is generally preferred over EXW for international trade because the seller, who is in the origin country, is better placed to handle export formalities.

What does DDP mean in shipping?

DDP (Delivered Duty Paid) is the seller's maximum obligation. The seller is responsible for delivering goods to the buyer's named destination, cleared for import, with all duties and taxes paid. It is the opposite of EXW. DDP is common in e-commerce and direct-to-consumer international shipping, where buyers want a predictable all-inclusive price.

How many Incoterms are there?

There are 11 Incoterms in the current Incoterms 2020 edition published by the ICC: EXW, FCA, CPT, CIP, DAP, DPU, DDP (suitable for any mode of transport), and FAS, FOB, CFR, CIF (for sea and inland waterway transport only). Incoterms 2020 replaced DAT with DPU compared to the 2010 edition.

Which Incoterm is best for importers?

For importers who want maximum control over freight and insurance costs, FOB or FCA are generally preferred — the buyer controls the main shipping leg and can negotiate their own freight rates. For importers who prefer simplicity and want the seller to handle everything, DAP or DDP are better choices. The 'best' Incoterm depends on your negotiating position, logistics capability, and the volume you're shipping.

What is the difference between Incoterms 2010 and 2020?

The main change from Incoterms 2010 to Incoterms 2020 is the replacement of DAT (Delivered at Terminal) with DPU (Delivered at Place Unloaded). Other changes include: FCA now allows buyer to instruct carrier to issue an on-board bill of lading; CIP insurance cover was upgraded from Clause C to Clause A; all costs are now listed in a single place in each rule; and security-related obligations were clarified.

Incoterms Explained: Complete B2B Trade Guide (EXW, FOB, CIF, DDP & All 11 Terms)

Q: What is the difference between FOB and CIF?

Under FOB (Free On Board), the seller is responsible for delivering goods on board the vessel at the named port of shipment. Risk and cost transfer to the buyer once the goods are loaded. Under CIF (Cost, Insurance and Freight), the seller pays freight and insurance to the named destination port — but risk still transfers when goods are loaded on board at origin. CIF gives the buyer more convenience but less control over freight and insurance selection.

Every time goods cross a border, someone is responsible for freight, insurance, customs clearance, and the risk of loss or damage. Without a shared framework, buyer and seller disputes are inevitable — and costly. Incoterms exist to eliminate that ambiguity. They are the universal language of international trade logistics, used in contracts across every industry from electronics manufacturing to pharmaceuticals to consumer goods.

This guide decodes all 11 Incoterms in plain English — with detailed definitions, buyer vs seller responsibilities, comparison tables, and a practical decision framework. Whether you are a manufacturer looking to export your products, a distributor evaluating import terms, or a brand owner working with contract manufacturers, getting Incoterms right is non-negotiable.

💡 Who This Guide Is For

Manufacturers, exporters, importers, brand owners, distributors, freight forwarders, and procurement professionals who need a definitive plain-English reference for all Incoterms — including which to use, which to avoid, and how they interact with your trade partnerships and supplier agreements.

SECTION 1

1 What Are Incoterms?

🎯 Definition

Incoterms (International Commercial Terms) are a globally recognised set of 11 standardised trade terms published and maintained by the International Chamber of Commerce (ICC). They define the division of costs, risks, and responsibilities between buyer and seller in international — and often domestic — sales contracts. Specifically, Incoterms clarify: who pays for freight and insurance at each stage, when risk transfers from seller to buyer, and who handles customs clearance at origin and destination.

First introduced in 1936, Incoterms have been revised nine times to reflect the evolving realities of global trade — the latest edition being Incoterms 2020, which came into effect on 1 January 2020. The word “Incoterms” is a registered trademark of the ICC; it is not a generic term for trade terms but specifically refers to ICC’s published rules.

What Incoterms Cover — and What They Don’t

✅ What Incoterms DO Define

✅ Who pays for freight, loading, unloading at each stage
✅ Exactly where and when risk transfers from seller to buyer
✅ Who arranges and pays for export customs clearance
✅ Who arranges and pays for import customs clearance and duties
✅ Who arranges and pays for cargo insurance
✅ Who provides shipping documents (bill of lading, etc.)

❌ What Incoterms Do NOT Cover

❌ Transfer of ownership / title to goods
❌ Payment terms (when or how buyer pays seller)
❌ Contract of sale (product specs, warranties)
❌ Dispute resolution or applicable law
❌ Consequences of breach of contract
❌ Taxation or VAT obligations

📌 Critical Distinction

Incoterms define delivery and risk transfer — not payment or ownership. A shipment on DDP terms does not mean the buyer has paid; it means the seller has delivered and cleared goods to the buyer’s door. Payment terms (T/T, L/C, etc.) are agreed separately in the sales contract.

Standard Incoterms in the current 2020 edition

9×

Revised since 1936 to keep pace with global trade evolution

ICC

International Chamber of Commerce — the body that publishes and owns Incoterms

Global

Used in trade contracts across every industry and 200+ countries worldwide

SECTION 2

2 All 11 Incoterms at a Glance

Here is a quick-reference overview of all 11 Incoterms 2020 terms. They are divided into two groups: 7 terms applicable to any mode of transport (including multimodal, air, road, and rail), and 4 terms applicable only to sea and inland waterway transport.

EXW

Ex Works

Seller makes goods available at their premises. Buyer bears all risks and costs from that point.

🔴 Max Buyer Risk

FCA

Free Carrier

Seller delivers to named carrier or place nominated by buyer. Risk transfers at that named point.

📦 Any Mode

CPT

Carriage Paid To

Seller pays freight to named destination. Risk transfers to buyer when handed to first carrier.

📦 Any Mode

CIP

Carriage & Insurance Paid To

Like CPT + seller provides Clause A insurance to named destination. Popular for high-value cargo.

🛡️ Includes Insurance

DAP

Delivered at Place

Seller delivers to named destination, ready to unload. Buyer handles import clearance and duties.

🏭 Door Delivery

DPU

Delivered at Place Unloaded

Seller delivers AND unloads at named destination. Only term requiring seller to unload. New in 2020.

🆕 New in 2020

DDP

Delivered Duty Paid

Seller’s maximum obligation. Seller delivers cleared for import, all duties paid, to buyer’s door.

🔵 Max Seller Risk

FAS

Free Alongside Ship

Seller delivers goods alongside the vessel at named port of shipment. Sea/waterway only.

⚓ Sea Only

FOB

Free On Board

Seller loads goods on vessel at named port. Risk transfers once goods are on board. Most popular.

⚓ Most Used

CFR

Cost and Freight

Seller pays freight to destination port. Risk transfers when goods loaded on vessel at origin.

⚓ Sea Only

CIF

Cost Insurance & Freight

Like CFR + seller provides minimum Clause C insurance to destination port. Widely used in commodities.

⚓ Sea Favourite

SECTION 3

3 The Seller–Buyer Obligation Spectrum

The single most useful mental model for Incoterms: imagine a spectrum from maximum buyer obligation (EXW) to maximum seller obligation (DDP). As you move along the spectrum, more responsibility shifts from buyer to seller. This is also reflected in the price — a DDP price includes everything the seller must do; an EXW price is just the goods at factory gate.

Responsibility Spectrum: Buyer ←→ Seller

EXW

FCA
FAS

FOB
CFR

CPT
CIF

CIP

DAP
DPU

DDP

🔴 Max Buyer Responsibility 🔵 Max Seller Responsibility

Stage in Journey	EXW	FCA / FOB	CPT / CFR / CIF	DAP / DPU	DDP
Origin warehouse packing	Seller ✓	Seller ✓	Seller ✓	Seller ✓	Seller ✓
Export customs clearance	Buyer ✓	Seller ✓	Seller ✓	Seller ✓	Seller ✓
Origin port / loading charges	Buyer ✓	Buyer / Seller*	Seller ✓	Seller ✓	Seller ✓
Main freight (ocean / air / road)	Buyer ✓	Buyer ✓	Seller ✓	Seller ✓	Seller ✓
Cargo insurance	Buyer	Buyer	Buyer (CPT) / Seller (CIF/CIP)	Seller ✓	Seller ✓
Destination port charges	Buyer ✓	Buyer ✓	Buyer ✓	Seller ✓	Seller ✓
Import customs clearance	Buyer ✓	Buyer ✓	Buyer ✓	Buyer ✓	Seller ✓
Import duties & taxes	Buyer ✓	Buyer ✓	Buyer ✓	Buyer ✓	Seller ✓
Final delivery to buyer’s door	Buyer ✓	Buyer ✓	Buyer ✓	Seller ✓	Seller ✓

SECTION 4

4 The 7 Incoterms for Any Mode of Transport

These seven terms can be used regardless of how goods are transported — by sea, air, road, rail, or a combination. They are particularly relevant for manufacturers and distributors using multimodal transport, air freight, or road/rail connections where sea-specific terms would be inappropriate.

EXW

Ex Works

📦 Any Mode ⚠️ Not Recommended for Cross-Border

Seller’s obligation is minimal: make goods available at their premises (factory, warehouse, etc.). From this point, the buyer bears all costs and risks — including loading, export clearance, freight, insurance, import clearance, and final delivery.

EXW is the most advantageous Incoterm for the seller and the most burdensome for the buyer. While it seems simple, it is actually problematic for international trade because the buyer — who is in the destination country — must arrange and pay for export clearance in the origin country, where they have no legal presence. In practice, EXW works best for domestic trade or where the buyer has a freight forwarder or agent in the seller’s country.

📘 Seller Responsible For

Packing goods
Making goods available at named premises
Providing commercial invoice and packing list

📗 Buyer Responsible For

Loading at seller’s premises
Export customs clearance & duties
All freight (origin to destination)
Insurance
Import clearance & all duties

FCA

Free Carrier

📦 Any Mode ⭐ Recommended for Air & Multimodal

Seller delivers goods to a named carrier or place nominated by the buyer — typically a carrier’s depot, the port, or a named address. The seller handles export clearance. Risk transfers at the named delivery point.

FCA is the recommended alternative to FOB for containerised and air freight shipments. A key change in Incoterms 2020 allows the buyer to instruct the carrier to issue a shipped-on-board bill of lading — addressing the requirement of documentary credit banks. FCA is flexible: the delivery point can be the seller’s premises (seller loads) or another place (buyer arranges collection).

📘 Seller Responsible For

Export packaging & documentation
Export customs clearance
Delivery to named carrier/place
Loading if delivery at seller’s premises

📗 Buyer Responsible For

Main carriage (freight from named point)
Insurance
Destination charges
Import customs clearance & duties

CPT

Carriage Paid To

📦 Any Mode Seller Pays Freight

Seller contracts and pays for carriage to the named destination. However, risk transfers to the buyer when goods are handed to the first carrier at origin — not at the destination. This cost/risk split is crucial.

CPT is the multimodal equivalent of CFR. The split between where cost transfers (destination) and where risk transfers (first carrier at origin) means buyers carry the risk of transit damage even though the seller paid for the freight. Buyers should ensure they have adequate insurance under CPT arrangements.

📘 Seller Responsible For

Export clearance
Main carriage cost to named destination
Contracting with carriers

📗 Buyer Responsible For

Risk from handover to first carrier
Insurance (buyer must arrange)
Destination charges
Import clearance & duties

CIP

Carriage and Insurance Paid To

📦 Any Mode Clause A Insurance ⭐ Best for High-Value Goods

Same as CPT but seller also provides insurance. Under Incoterms 2020, CIP requires Clause A (all-risk) insurance — the highest level — whereas CIF only requires Clause C. This upgrade from 2010 makes CIP significantly more protective for buyers.

CIP is strongly recommended for high-value goods, pharmaceuticals, electronics, and cargo that is difficult to replace. The seller’s Clause A insurance requirement ensures the buyer is covered for almost all risks during transit. The risk-transfer point is still origin (first carrier), same as CPT.

📘 Seller Responsible For

Export clearance
Main carriage cost to named destination
Clause A (all-risk) insurance

📗 Buyer Responsible For

Risk from handover to first carrier
Destination charges
Import clearance & duties

DAP

Delivered at Place

📦 Any Mode ⭐ Popular for B2B Distribution

Seller delivers goods to the named destination, ready for unloading by the buyer. Seller handles all transport, export clearance, and transit risks. Buyer handles unloading, import clearance, and duties.

DAP is widely used in B2B distribution where the seller (often a manufacturer or exporter) wants to handle the full door-to-door logistics but the buyer prefers to manage their own import procedures. It is particularly common in international distribution agreements where the manufacturer supplies to local distributors on a delivered basis.

📘 Seller Responsible For

All freight & insurance to named destination
Export clearance
All transit risks until named place

📗 Buyer Responsible For

Unloading at destination
Import customs clearance
Import duties & taxes

DPU

Delivered at Place Unloaded

📦 Any Mode 🆕 Replaced DAT in 2020

Seller delivers and unloads goods at the named destination. DPU is the only Incoterm where the seller is responsible for unloading. It replaced DAT (Delivered at Terminal) in Incoterms 2020, extending delivery beyond terminals to any named place.

DPU is useful when the seller has or can arrange unloading facilities at the destination, or when the delivery point does not have its own unloading equipment. Compared to DAP, the seller under DPU bears the cost and risk of unloading — an important distinction when negotiating with distributors or warehouses.

📘 Seller Responsible For

All freight to named destination
Export clearance
Unloading at destination

📗 Buyer Responsible For

Import customs clearance
Import duties & taxes
Onward delivery from unloaded point

DDP

Delivered Duty Paid

📦 Any Mode 🔵 Maximum Seller Obligation ⚠️ Avoid if Seller Can’t Import Locally

The seller’s maximum obligation. Seller is responsible for delivering goods to the buyer’s named address, cleared for import, with all import duties and taxes paid. The buyer only needs to unload the goods.

DDP is the mirror image of EXW. The buyer pays the DDP price and receives goods at their door with all costs included. However, DDP requires the seller to have the ability to pay import duties in the destination country — which may not be legally straightforward without a local entity. DDP is widely used in B2C e-commerce and cross-border retail. In B2B, it is used where the manufacturer supplies to retail chains or when distributors require a fully landed cost.

📘 Seller Responsible For

All freight, insurance & handling
Export & import customs clearance
All import duties, VAT & taxes
Delivery to buyer’s named address

📗 Buyer Responsible For

Unloading (unless agreed otherwise)
Nothing else — buyer pays one all-in price

SECTION 5

5 The 4 Incoterms for Sea & Inland Waterway Only

These four terms — FAS, FOB, CFR, and CIF — are exclusively for ocean and inland waterway transport. Using them for air, road, or containerised multimodal shipments creates legal ambiguity and risk, because the risk transfer point (alongside ship / on board) may not map to how containerised cargo is actually handled. For containers, FCA should be used instead of FOB.

FAS

Free Alongside Ship

⚓ Sea & Inland Waterway Only

Seller delivers goods alongside the named vessel at the port of shipment. Risk transfers once goods are placed alongside the ship on the quay or in lighters. Seller handles export clearance.

FAS is primarily used for bulk cargo, heavy machinery, or goods loaded directly by crane at the vessel. It is less common for containerised trade. The buyer then arranges and pays for loading, ocean freight, and all subsequent costs.

📘 Seller Responsible For

Export clearance
Delivery alongside vessel at named port

📗 Buyer Responsible For

Loading on board vessel
Ocean freight
Insurance
Import clearance & duties

FOB

Free On Board

⚓ Sea & Inland Waterway Only ⭐ Most Used in Global Trade

Seller delivers goods on board the vessel at the named port of shipment and clears goods for export. Risk transfers once goods are loaded on board. Buyer contracts and pays for ocean freight, insurance, and all subsequent costs.

FOB is the single most widely used Incoterm in global trade, particularly for manufacturing exports from Asia. It gives buyers control over the main ocean freight leg — allowing them to negotiate their own shipping rates and select preferred carriers. For large-volume buyers, this can result in significant freight savings compared to CIF, where the seller controls freight selection. However, for containerised cargo, ICC actually recommends using FCA instead of FOB to better reflect where risk transfers in container logistics.

📘 Seller Responsible For

Export packing & documentation
Export customs clearance & duties
Delivery on board vessel at named port
Loading charges at origin port

📗 Buyer Responsible For

Ocean freight from origin port
Cargo insurance
Destination port charges
Import customs clearance & duties

CFR

Cost and Freight

⚓ Sea & Inland Waterway Only ⚠️ Risk/Cost Split at Origin

Seller pays freight to the named destination port. However — critically — risk transfers when goods are loaded on board the vessel at origin, not at destination. Seller does not provide insurance.

CFR creates the same risk/cost split as CPT: the seller pays freight to destination, but risk has already transferred to the buyer at origin loading. Buyers under CFR must remember to arrange their own insurance for the ocean voyage, even though the seller paid for it. CFR is commonly used in commodity trade (grain, metals, bulk goods).

📘 Seller Responsible For

Export clearance
Loading on board at origin
Ocean freight to destination port

📗 Buyer Responsible For

Risk from loading at origin
Cargo insurance (must self-arrange)
Destination port charges & unloading
Import clearance & duties

CIF

Cost, Insurance and Freight

⚓ Sea & Inland Waterway Only ⭐ Popular with Smaller Buyers

Seller pays freight and provides minimum Clause C insurance to the named destination port. Risk still transfers when goods are loaded at origin. The seller’s insurance (Clause C) is minimum cover — buyers should consider supplementing with their own policy.

CIF is extremely popular in global trade because it offers buyers convenience — a single price to their destination port that includes freight and basic insurance. However, buyers should be aware that: (1) risk still transfers at origin loading; (2) Clause C insurance only covers major perils — not all losses; and (3) buyers lose control over freight selection, meaning sellers may use cheaper, less reliable carriers. Large importers with significant buying power often prefer FOB to control their freight costs. Smaller importers often prefer CIF for simplicity. For more details on structuring trade relationships, see our guide on licensing vs distribution agreements.

📘 Seller Responsible For

Export clearance
Loading on board at origin
Ocean freight to destination port
Minimum Clause C insurance

📗 Buyer Responsible For

Risk from loading at origin
Destination port charges & unloading
Import clearance & duties
Top-up insurance if needed

SECTION 6

6 Full Comparison: All 11 Incoterms Side-by-Side

The definitive reference table — all 11 terms compared across seven key dimensions.

Incoterm	Mode	Risk Transfers When…	Seller Pays Freight	Seller Arranges Insurance	Seller Handles Export	Seller Handles Import	Best For
EXW	Any	Goods available at seller’s premises	❌ No	❌ No	❌ No	❌ No	Domestic trade; buyer has local agent
FCA	Any	Goods delivered to named carrier/place	❌ No	❌ No	✅ Yes	❌ No	Containerised, air & multimodal
CPT	Any	Goods handed to first carrier at origin	✅ Yes	❌ No	✅ Yes	❌ No	Multimodal; buyer arranges own insurance
CIP	Any	Goods handed to first carrier at origin	✅ Yes	✅ Clause A	✅ Yes	❌ No	High-value, pharma, electronics
DAP	Any	Goods ready to unload at destination	✅ Yes	✅ Yes	✅ Yes	❌ No	B2B distribution; seller handles logistics
DPU	Any	Goods unloaded at destination	✅ Yes	✅ Yes	✅ Yes	❌ No	Terminal/warehouse delivery; seller unloads
DDP	Any	Goods delivered to buyer’s door	✅ Yes	✅ Yes	✅ Yes	✅ Yes	E-commerce; buyer wants all-in price
FAS	Sea only	Goods alongside vessel at origin port	❌ No	❌ No	✅ Yes	❌ No	Bulk cargo, heavy machinery
FOB	Sea only	Goods loaded on board at origin	❌ No	❌ No	✅ Yes	❌ No	Break-bulk, bulk; most popular overall
CFR	Sea only	Goods loaded on board at origin	✅ Yes	❌ No	✅ Yes	❌ No	Commodities; buyer arranges insurance
CIF	Sea only	Goods loaded on board at origin	✅ Yes	✅ Clause C (min)	✅ Yes	❌ No	Smaller importers; convenience pricing

📌 Insurance Note: CIF vs CIP

CIF (sea only) provides minimum Clause C insurance — covering named perils like fire, sinking, collision. CIP (any mode) provides Clause A (all-risk) insurance — covering almost all physical loss or damage. For manufactured goods, pharmaceuticals, or electronics, CIP’s all-risk cover is significantly more valuable. The insurance under both terms is for the buyer’s benefit, but arranged and paid for by the seller.

SECTION 7

7 FOB vs CIF: The Most Debated Trade-Off

FOB vs CIF is the most common trade-term debate in global manufacturing and distribution — particularly for ocean freight sourcing from Asia. The choice has real financial implications.

Factor FOB (Buyer Controls Freight) CIF (Seller Controls Freight)

Who books the ocean freight?

✓ Buyer — full control

Seller — buyer has no input

Carrier selection

✓ Buyer chooses preferred carrier

Seller chooses — may prioritise cheapest

Freight rate transparency

✓ Buyer sees actual market rate

Seller may bundle margin into freight cost

Insurance quality

Buyer arranges — can choose full cover

Seller provides min Clause C only

Complexity for buyer

Higher — must manage freight forwarder

✓ Lower — one destination-port price

Best for

✓ Large importers with freight buying power

Smaller importers; first-time buyers

Risk transfer point

On board vessel at origin port

On board vessel at origin port (same)

✨ GTsetu Insight for Manufacturers

When establishing trade terms with an international distributor found through GTsetu, most B2B partnerships use FOB or DAP. FOB is preferred when the distributor has established freight relationships in their home country. DAP is preferred when the manufacturer wants to offer a delivered price to simplify the distributor’s cost modelling. Discuss Incoterms explicitly during the secure collaboration phase of your partnership — before any commercial terms are locked.

SECTION 8

8 EXW vs FOB: Why EXW Is Often a Mistake for Exporters

Many sellers instinctively prefer EXW because it appears to minimise their obligations. In reality, EXW can create significant problems for international trade — and many experienced exporters recommend avoiding it in favour of FOB or FCA.

Issue	EXW	FOB / FCA (Recommended)
Export clearance	Buyer must arrange in seller’s country — where buyer has no legal presence or agent	Seller handles in their own country — legally straightforward
Loading at seller’s premises	Buyer’s risk, even if seller’s staff physically load the goods	Seller’s risk until goods on board vessel (FOB) or at named point (FCA)
Risk of export refusal	Goods may be stranded if buyer’s agent fails to arrange export docs	Seller ensures all export requirements are met
Compliance exposure	Seller may still be implicated if buyer misuses goods post-export	Seller controls export process and can verify end-use
Practical reality	Seller often ends up helping with export anyway — informally, with all the risk	Responsibilities are clearly defined and legally allocated

SECTION 9

9 DDP vs DAP: Maximum Seller Obligation Terms Compared

Factor	DDP	DAP
Import customs clearance	Seller handles and pays	Buyer handles and pays
Import duties & VAT	Seller pays all duties and taxes	Buyer pays all duties and taxes
Seller needs local entity?	Often yes — to pay duties and VAT in destination country	No — buyer manages import
Buyer convenience	Maximum — one all-in price	Good — buyer just handles customs
Seller’s duty risk	High — unexpected duty rates affect seller’s margin	None — buyer bears duty risk
Common use case	E-commerce, direct-to-consumer, retailer supply contracts	B2B distribution, manufacturing supply chains
VAT complication	Seller may not be able to reclaim import VAT in destination country	Buyer reclaims VAT as normal

⚠️ DDP Caution for Manufacturers

DDP can trap sellers if import duty rates change unexpectedly (e.g., tariff hikes, anti-dumping measures) after the contract is signed. On DAP, the buyer bears this risk. Many experienced manufacturers and distribution partners prefer DAP for exactly this reason — it gives the distributor (who is in the destination country and better understands the import regime) control over their own customs process.

SECTION 10

10 Which Incoterm Should You Use?

The right Incoterm depends on your role in the transaction, your logistics capability, the mode of transport, the product type, and your relationship with the counterparty. Use this decision framework to guide your choice.

🧭 Incoterms Decision Guide for B2B Trade

Buyer wants maximum control over freight & shipping costs (ocean)

→ Use FOB

FOB

Buyer books their own ocean freight at market rates. Best for high-volume importers with freight forwarder relationships.

Buyer wants convenience; seller handles freight & basic insurance

→ Use CIF (or DAP)

CIF / DAP

CIF for ocean to destination port; DAP for door delivery. Good for smaller importers or first-time partnerships.

Multimodal, air, or containerised shipment (not bulk sea)

→ Use FCA instead of FOB

FCA

FCA correctly reflects risk transfer for containers. ICC officially recommends FCA over FOB for containerised cargo.

Buyer wants all-in price; seller to handle everything including import duties

→ Use DDP

DDP

Seller assumes all costs. Common in e-commerce and retail supply. Seller must be able to legally pay import duties.

Seller delivers to buyer’s door but buyer manages their own import

→ Use DAP

DAP

Seller delivers to named address; buyer handles import clearance and duties. Clean split used in many B2B distribution contracts.

High-value goods; seller should provide comprehensive insurance

→ Use CIP (any mode)

CIP

CIP requires Clause A all-risk insurance paid by seller. Ideal for electronics, pharma, and luxury goods in multimodal or air shipments.

Incoterm Selector by Trade Role

Your Role	Your Priority	Recommended Incoterm	Avoid
Manufacturer / Exporter	Minimise logistics obligations	FOB or FCA	DDP (unless you have local presence)
Manufacturer / Exporter	Offer competitive delivered pricing	DAP or CIF	EXW (creates export complications)
Importer / Distributor	Control freight costs & carrier selection	FOB or FCA	CIF (loses freight control)
Importer / Distributor	Simplicity; single landed price	CIF or DAP	EXW (too many moving parts)
B2B Brand Owner (OEM)	Supplier delivers to factory/warehouse	DAP or DDP	EXW when supplier is overseas
E-commerce / Direct-to-Consumer	Customer pays one all-in price	DDP	DAP (customer must handle import)

SECTION 11

11 Common Incoterms Mistakes to Avoid

🚫

Using FOB for Containerised Cargo

FOB risk transfers when goods are loaded on board the vessel — but containerised cargo is handed to the carrier (CFS/CY) well before vessel loading. FCA is the ICC-recommended alternative that correctly reflects this reality.

🚫

Choosing EXW for International Trade

EXW places the burden of export clearance on the buyer — who is in the destination country. This is legally problematic and practically difficult. FOB or FCA are almost always better for international shipments.

🚫

Confusing “Risk Transfer” with “Cost Transfer”

Under CPT, CFR, and CIF, the seller pays freight to destination — but risk transfers at origin. Many buyers assume they are fully protected because the seller paid for freight. Wrong — they must arrange their own insurance.

🚫

Not Specifying a Named Place

Every Incoterm must be followed by a precise named place or port (e.g., “FOB Shanghai” not just “FOB”). Without a named location, the term is legally ambiguous and disputes about the delivery point become impossible to resolve.

🚫

Assuming Incoterms Cover Everything

Incoterms do not cover payment, title transfer, warranties, product specifications, or dispute resolution. These must be addressed separately in your sales contract or distribution agreement.

🚫

Using Obsolete Terms (DAT)

DAT was replaced by DPU in Incoterms 2020. While contracts referencing DAT may still be honoured, using current 2020 terms avoids any ambiguity. Always specify the version: “CIF Incoterms 2020.”

🚫

Selling DDP Without Local Legal Presence

A seller using DDP must pay import duties and VAT in the destination country — which often requires a local entity or fiscal representative. Without this, the seller may breach local tax law or be unable to clear the goods.

🚫

Accepting CIF When Shipping High-Value Goods

CIF provides minimum Clause C insurance only. For electronics, pharmaceuticals, or luxury goods, the limited cover may not be sufficient. Negotiate CIP (Clause A) or arrange supplemental insurance independently under FOB.

SECTION 12

12 Incoterms by Industry: What Each Sector Typically Uses

Industry	Dominant Incoterms	Why	GTsetu Relevance
Consumer Electronics	FOB (origin), DAP (delivery)	High-volume buyers control own freight; DAP for distributor supply	Manufacturers & distributors connect on GTsetu for cross-border supply
Pharmaceuticals	CIP or DDP	Cold chain; high-value cargo needs Clause A insurance; DDP for retail	Verified CMO/CDMO partners on GTsetu with GMP compliance credentials
Food & Beverage	CIF, FOB, DAP	Bulk commodity trade uses CIF; finished product distribution uses DAP	CMO partnerships for regional manufacturing; distributor sourcing globally
Industrial Equipment	CIP, DAP	High-value heavy equipment needs insurance; DAP for project deliveries	OEM manufacturers finding certified service distributors
Apparel & Footwear	FOB	Brands buy FOB from Asian factories; control own freight consolidation	Contract manufacturers finding OEM brand owner clients on GTsetu
Automotive Parts	DAP or FCA	Just-in-time delivery requires seller to manage logistics to factory	Tier 1/2 supplier partnerships across manufacturing hubs
Commodities (Grain, Metals)	CIF, CFR, FOB	Classic bulk trade terms; documentary credit banks require these terms	Less directly relevant — GTsetu focuses on manufactured goods trade
Cosmetics & FMCG	DAP, DDP	Brand owners supply distributors DAP; DDP for e-commerce channels	CMO-to-distributor partnerships; find distributors on GTsetu

SECTION 13

13 Incoterms 2010 vs Incoterms 2020: Key Changes

Incoterms 2020 came into effect on 1 January 2020. Both versions remain in use — contracts can specify either edition, and both are legally valid. Here are the key differences.

Change Area	Incoterms 2010	Incoterms 2020
DAT → DPU	DAT (Delivered at Terminal) — limited to terminal delivery	DPU (Delivered at Place Unloaded) — extends delivery to any named place, not just terminals
FCA + Bill of Lading	No provision for on-board bill of lading under FCA	Buyer can instruct carrier to issue shipped-on-board B/L to seller, enabling documentary credit use
CIP Insurance Level	CIP required minimum Clause C insurance (same as CIF)	CIP now requires Clause A (all-risk) insurance — significantly higher cover
Own Transport (FCA, DAP, DPU, DDP)	Not explicitly addressed	Parties can use own means of transport — not just 3rd party carriers — under these terms
Security obligations	Minimal reference	Explicit security-related obligations and cost allocation included for all terms
Cost listing format	Costs listed across multiple articles	All costs consolidated in single A9/B9 article per term — easier reference
Explanatory notes	Limited guidance notes	Detailed explanatory notes for each rule included in the official publication

✅ Best Practice: Always Specify the Version

When using Incoterms in a contract, always specify the edition — for example: “FOB Shanghai, Incoterms 2020”. This eliminates ambiguity if there is any dispute about which version applies. Contracts that only say “FOB” without a year may default to the most recent version, but specifying the year is always safer.

SECTION 14

14 GTsetu: Finding Verified Trade Partners Who Speak Your Terms

🌐 Platform Spotlight — GTsetu

Understanding Incoterms Is Step One. Finding the Right Partner Is Step Two.

Knowing your Incoterms is essential — but it only matters in the context of a real trade relationship. The hardest part for most manufacturers, exporters, and distributors is finding verified counterparties who operate under clearly defined commercial terms, understand Incoterms in their trade context, and can be trusted to execute. GTsetu solves this: a compliance-verified B2B discovery platform connecting manufacturers, brand owners, and international distributors across 100+ countries — with built-in NDA workflows, zero broker commission, and structured onboarding that ensures both parties are clear on commercial terms from day one. Whether you are a manufacturer looking for verified international distributors who can handle DAP or DDP deliveries, or a distributor seeking manufacturers who can supply on FOB terms, GTsetu is where the search begins.

✅

Multi-Layer Verification Business registration, tax credentials, and trade certifications checked before any company goes live.

🕵️

Anonymous Discovery Browse verified manufacturer and distributor profiles without revealing your identity until mutual interest is confirmed.

📄

Built-In NDA Workflow Formalise confidentiality before sharing pricing, product specs, or Incoterm preferences — with complete audit trail.

🚫

Zero Commission No broker fees, ever. Your commercial deal — including the Incoterms agreed — stays between you and your partner.

🔐

Secure Document Sharing Share price lists, shipping terms, and product specs with encryption and full access controls.

🌍

100+ Countries Active verified network spanning Asia, Middle East, Europe, Africa, Australia, and the Americas.

Join the Network → Browse Verified Partners

How Incoterms Feature in GTsetu Partnerships

Manufacturer → Distributor Supply Agreements

When a manufacturer found through GTsetu supplies an international distributor, the Incoterm in the supply agreement defines who handles cross-border logistics. DAP and FOB are the most common terms used in these distribution agreements.

📍 Typical: FOB origin or DAP distributor’s warehouse

OEM → Contract Manufacturer Supply

In contract manufacturing relationships, the OEM typically buys on FOB or FCA terms from their CM, then manages global distribution from there. The CM is responsible up to vessel loading; the OEM takes over.

📍 Typical: FOB factory port to OEM’s logistics hub

Co-Development & Joint Venture Trade

In co-development partnerships and joint ventures, components or finished goods may cross borders between partners. FCA and CIP are commonly used to handle intercompany transfers with clear risk and insurance allocation.

📍 Typical: FCA or CIP for intercompany component transfers

White Label & Private Label Supply

For white label and private label arrangements, the brand owner often wants goods delivered to their warehouse — making DAP or DDP the natural Incoterm choice so the brand owner can receive finished goods without logistics complexity.

📍 Typical: DAP brand owner’s distribution centre

FAQ

? Frequently Asked Questions

QWhat are Incoterms and why do they matter?

Incoterms (International Commercial Terms) are 11 standardised trade terms published by the International Chamber of Commerce (ICC) that define who — buyer or seller — is responsible for freight, insurance, customs clearance, and risk at each stage of a shipment. They matter because without agreed Incoterms, every international transaction is ambiguous: who pays if the goods are damaged at sea? Who handles the import paperwork? Incoterms answer these questions clearly, reducing disputes and providing a common language for trade across 200+ countries.

QWhat is the most commonly used Incoterm in global trade?

FOB (Free On Board) is the most widely used Incoterm globally, particularly for ocean freight sourcing from Asia. It strikes a practical balance: the seller handles export clearance and gets goods on board the vessel; the buyer controls the ocean freight booking and manages import from that point. CIF (Cost, Insurance and Freight) is the second most popular, commonly used by smaller importers who prefer the seller to arrange freight and basic insurance to their destination port.

QWhat is the difference between FOB and CIF?

Both FOB and CIF apply to sea transport only, and in both terms, risk transfers when goods are loaded on board the vessel at the origin port. The difference is who pays for the main ocean freight and insurance: under FOB, the buyer arranges and pays for ocean freight and insurance; under CIF, the seller pays for both. FOB gives buyers freight control and transparency; CIF gives buyers convenience at the cost of losing freight selection control. Risk transfer is at the same point — origin loading — for both.

QWhat changed between Incoterms 2010 and Incoterms 2020?

The four key changes in Incoterms 2020 are: (1) DAT was replaced by DPU (Delivered at Place Unloaded), extending delivery beyond terminals to any named place; (2) FCA now allows the buyer to request a shipped-on-board bill of lading from the carrier, enabling letter of credit use; (3) CIP’s insurance requirement was upgraded from Clause C to Clause A (all-risk), making it significantly more protective; and (4) parties using FCA, DAP, DPU, and DDP can now use their own means of transport, not just third-party carriers. Both 2010 and 2020 editions remain legally valid when specified in a contract.

QWhy should I avoid EXW for international trade?

EXW places the responsibility for export customs clearance on the buyer — who is in the destination country and has no legal presence or established relationships in the seller’s country. This makes export clearance practically difficult and can create legal complications. Additionally, under EXW, if the seller’s staff help load goods onto the buyer’s truck and damage occurs during loading, the liability is still technically the buyer’s — even though the seller’s employees caused it. FOB or FCA are almost always better alternatives for international shipments.

QDo Incoterms determine who owns the goods during transit?

No. Incoterms do not govern the transfer of ownership or title to goods — they only address delivery and risk. A separate clause in your sales contract must address when title passes. It is common for title to pass at the same point as risk (e.g., at FOB loading), but this must be explicitly stated in the contract. In some trade finance arrangements, the seller may retain title until payment is received, regardless of the Incoterm used.

QCan I use Incoterms for domestic trade?

Yes — Incoterms can technically be used for domestic trade, and EXW is particularly common domestically because there are no export/import formalities involved. However, Incoterms were designed primarily for international trade and do not address domestic-specific considerations like local transport regulations, VAT handling within a single jurisdiction, or local customs practices. Many countries have their own domestic trade terms that may be more appropriate for internal shipments.

QHow do I agree Incoterms with an international manufacturing or distribution partner found through GTsetu?

The GTsetu platform includes a built-in NDA workflow that enables secure information exchange before commercial terms are formally agreed. Once initial interest is established between a manufacturer and distributor, trade terms — including Incoterms — are typically discussed during the commercial negotiation phase. Most manufacturers on GTsetu can supply on FOB, CIF, or DAP terms; most distributors have a preference based on their freight capabilities. The platform facilitates secure document sharing for initial pricing and trade term discussions, after which parties proceed to bilateral contract finalisation. See our guide on B2B secure collaboration for more on protecting your commercial information during negotiations.

How to Find International Distributors

Once you know your Incoterms, the next step is finding the right distribution partners globally.

Licensing vs Distribution Agreements

Understanding the commercial structure that governs how Incoterms are applied in your trade partnerships.

OEM vs ODM vs EMS Explained

Understanding which manufacturing model you use determines which Incoterms are most relevant to your supply chain.

B2B Secure Collaboration

How to safely share pricing, shipping terms, and product information with potential trade partners.

What Is Contract Manufacturing?

How Incoterms fit into OEM–CM supply chain relationships and how to find verified CM partners globally.

MOQ (Minimum Order Quantity) Explained

MOQ and Incoterms work together in pricing negotiations — understanding both is essential for cost-effective sourcing.

Ready to Put Your Incoterms Knowledge to Work?

Join 500+ verified manufacturers, exporters, and distributors already building cross-border trade partnerships on GTsetu — with compliance-backed verification, zero broker fees, and built-in NDA workflows across 100+ countries.

Get Started Free → Browse Verified Partners

Incoterms Explained: All 11 Terms, Risk Transfer & How to Choose — Complete B2B Guide

1 What Are Incoterms?

What Incoterms Cover — and What They Don’t

2 All 11 Incoterms at a Glance

3 The Seller–Buyer Obligation Spectrum

4 The 7 Incoterms for Any Mode of Transport

5 The 4 Incoterms for Sea & Inland Waterway Only

6 Full Comparison: All 11 Incoterms Side-by-Side

7 FOB vs CIF: The Most Debated Trade-Off

8 EXW vs FOB: Why EXW Is Often a Mistake for Exporters

9 DDP vs DAP: Maximum Seller Obligation Terms Compared

10 Which Incoterm Should You Use?

Incoterm Selector by Trade Role

11 Common Incoterms Mistakes to Avoid

Using FOB for Containerised Cargo

Choosing EXW for International Trade

Confusing “Risk Transfer” with “Cost Transfer”

Not Specifying a Named Place

Assuming Incoterms Cover Everything

Using Obsolete Terms (DAT)

Selling DDP Without Local Legal Presence

Accepting CIF When Shipping High-Value Goods

12 Incoterms by Industry: What Each Sector Typically Uses

13 Incoterms 2010 vs Incoterms 2020: Key Changes

14 GTsetu: Finding Verified Trade Partners Who Speak Your Terms

Understanding Incoterms Is Step One. Finding the Right Partner Is Step Two.

How Incoterms Feature in GTsetu Partnerships

Manufacturer → Distributor Supply Agreements

OEM → Contract Manufacturer Supply

Co-Development & Joint Venture Trade

White Label & Private Label Supply

? Frequently Asked Questions

Ready to Put Your Incoterms Knowledge to Work?